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What changed in StableX Technologies, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of StableX Technologies, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+307 added−282 removedSource: 10-K (2024-04-01) vs 10-K (2023-03-23)

Top changes in StableX Technologies, Inc.'s 2023 10-K

307 paragraphs added · 282 removed · 187 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

53 edited+18 added−19 removed46 unchanged
Biggest changeWe believe the AYRO Vanish Fleet will provide all of these benefits to university and college campuses. We estimate that in the U.S., there are over 1,800 higher education campuses with over 10,000 students each with over 400 on-campus vehicles that are ideal targets for the AYRO Vanish Fleet as campuses transition from fossil-fueled campus fleet vehicles to LSEVs.
Biggest changeWe estimate that in the U.S., there are over 1,800 higher education campuses with over 10,000 students each with over 400 on-campus vehicles that are ideal targets for the AYRO Vanish Fleet as campuses transition from fossil-fueled campus fleet vehicles to LSEVs. 12 Food Delivery Services As the millennial generation assumes a more substantial portion of the consumer population, customers increasingly favor convenience and timeliness, spurring dramatic growth in online ordering and delivery services across a wide swath of industries, including food delivery and restaurant ordering services.
In the event we terminate the Linamar MLA prior to its expiration, whether following a change in control or otherwise, we must purchase any remaining raw material inventory, finished goods inventory and work in progress and any unamortized capital equipment used in production and testing of the Products and pay a termination fee of $750,000, subject to certain adjustments.
In the event we terminate the Linamar MLA prior to its expiration, whether following a change in control or otherwise, we must purchase any remaining raw material inventory, finished goods inventory, work in progress and any unamortized capital equipment used in production and testing of the Products and pay a termination fee of $750,000, subject to certain adjustments.
Cenntro owns the design of the AYRO Club Car 411 and 411x (“AYRO 411 Fleet”) vehicles and has granted us an exclusive license to purchase the AYRO 411 Fleet vehicles for sale in North America.
Cenntro owns the design of the AYRO Club Car 411 and 411x (“AYRO 411 Fleet”) vehicles and granted us an exclusive license to purchase the AYRO 411 Fleet vehicles for sale in North America.
The configurable Powered Vendor Box, in the rear of the vehicle, features long-life lithium batteries that power the preconfigured hot/cold beverage and food equipment is directly integrated with the 411x and will be directly integrated with the Vanish. The canopy doors, as well as the full vehicle, can be customized with end-user logos and graphics to enhance the brand experience.
The configurable Powered Vendor Box, in the rear of the vehicle, features long-life lithium batteries that power the preconfigured hot/cold beverage and food equipment and is directly integrated with the Vanish. The canopy doors, as well as the full vehicle, can be customized with end-user logos and graphics to enhance the brand experience.
We also make available, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports on our website at www.ayro.com as soon as reasonably practicable after those reports and other information is electronically filed with, or furnished to, the SEC. 14
We also make available, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports on our website at www.ayro.com as soon as reasonably practicable after those reports and other information is electronically filed with, or furnished to, the SEC. 16
Strategic Review Following the hiring of our current Chief Executive Officer in the third quarter of 2021, we initiated a strategic review of our product development strategy, as we focus on creating value within the electric vehicle, last-mile delivery, smart payload and enabling infrastructure markets.
Strategic Review Following the hiring of our former Chief Executive Officer in the third quarter of 2021, we initiated a strategic review of our product development strategy, as we focus on creating value within the electric vehicle, last-mile delivery, smart payload and enabling infrastructure markets.
The AYRO Vanish Fleet will have an expected range of over 50 miles and an expected maximum speed of 25 mph. in line with the United States Department of Transportation regulations for LSVs and with most state statutes, which typically limit the speed of LSVs to 25 mph or 35 mph posted roads.
The AYRO Vanish Fleet will be designed to have a range of over 50 miles and an expected maximum speed of 25 mph. in line with the United States Department of Transportation regulations for LSVs and with most state statutes, which typically limit the speed of LSVs to 25 mph or 35 mph posted roads.
AYRO Vanish In December 2021, we began design and development of the Vanish, including updates to our supply chain evolution, the offshoring/onshoring mix, our manufacturing strategy and our annual model year refresh program. We unveiled the first Vanish prototype in the fourth quarter of 2022.
AYRO Vanish In December 2021, we began design and development of the Vanish, including updates to our supply chain evolution, the offshoring/onshoring mix, our manufacturing strategy and our annual model year refresh program. We unveiled the first Vanish prototype in the fourth quarter of 2022, and pre-production was completed in December 2022.
We are filing and have filed a number of provisional utility and/or design patents associated with the aforementioned verticalization development, and we have filed for both domestic and international trademarks to cover the company name, company logo, and certain other key product and service marks.
We have filed a number of provisional utility and/or design patents applications associated with the aforementioned development, and we have filed for both domestic and international trademarks to cover the company name, company logo, and certain other key product and service marks.
Under our Manufacturing License Agreement with Cenntro (the “Cenntro MLA”), in order for us to maintain our exclusive territorial rights pursuant to the Cenntro MLA, we must meet certain minimum purchase requirements. We imported semi-knocked-down vehicle kits from Cenntro for the AYRO 411x models comprising our model year 2022 lineup.
Under our Manufacturing License Agreement with Cenntro (the “Cenntro MLA”), in order for us to maintain our exclusive territorial rights pursuant to the Cenntro MLA, we must meet certain minimum purchase requirements. We imported semi-knocked-down vehicle kits from Cenntro for the AYRO 411 Fleet models that comprised our model year 2022 lineup.
Vehicle Assembly time (Man-Hours) Vehicle Assembly Capacity per month AYRO Vanish 20 170 7 Supply Agreement with Gallery Carts During 2020, we entered into a supply agreement with Gallery Carts, a leading provider of food and beverage kiosks, carts, and mobile storefront solutions.
Vehicle Assembly time (Man-Hours) Vehicle Assembly Capacity per month AYRO Vanish 20 170 Supply Agreements In 2020, we entered into a supply agreement with Gallery Carts (“Gallery”), a leading provider of food and beverage kiosks, carts, and mobile storefront solutions.
The process involves the following five sequential cells: (1) cab preparation, (2) chassis preparation, (3) system integration and testing, (4) final assembly and integration test, and (5) quality assurance and FMVSS Compliance. Assembly quality and shift efficiency metrics are measured daily by our production staff at the end of every shift.
Our production system follows a lean, cell-based manufacturing model. The process involves the following five sequential cells: (1) cab preparation, (2) chassis preparation, (3) system integration and testing, (4) final assembly and integration test, and (5) quality assurance and FMVSS Compliance. Assembly quality and shift efficiency metrics are measured daily by our production staff at the end of every shift.
In connection with our strategic review, we have cancelled all material research and development activity and expenditures, associated with our planned next-generation three-wheeled high speed vehicle. For the past several years, our primary supplier has been Cenntro Automotive Group, Ltd. (“Cenntro”), which operates a large electric vehicle factory in the automotive district in Hangzhou, China.
In connection with our strategic review, we have cancelled all material research and development activity and expenditures, associated with our planned next-generation three-wheeled high speed vehicle. Our primary supplier was formerly Cenntro Automotive Group, Ltd. (“Cenntro”), which operates a large electric vehicle factory in the automotive district in Hangzhou, China.
On May 31, 2022, we received a letter from Cenntro purporting to terminate all agreements and contracts between the Company and Cenntro. Although we do not believe Cenntro’s termination of the Cenntro MLA is valid, we have determined to cease production of the AYRO 411x and focus our resources on the development and launch of the Vanish.
On May 31, 2022, we received a letter from Cenntro purporting to terminate all agreements and contracts between the Company and Cenntro. Although we do not believe Cenntro’s termination of the Cenntro MLA is valid, we have ceased production of the AYRO 411 Fleet models and determined to focus our resources on the Vanish.
We have canceled all purchase orders and future builds with Cenntro and currently intend to only order replacement parts for vehicles from Cenntro in the future. Cenntro inventory remaining on hand as of December 31, 2022 was $244,902.
We have canceled all purchase orders and future builds with Cenntro and currently intend to only order replacement parts for vehicles from Cenntro in the future. Cenntro inventory remaining on hand as of December 31, 2023, was valued at $0.
AYRO 411x The AYRO 411x is an electric, four-wheel, compact, light-duty utility trucks sold exclusively through our contracted partner, Club Car, as part of a global multi-year sustainability solution development, sales and marketing agreement.
AYRO 411x The AYRO 411x was an electric, four-wheel, compact, light-duty utility trucks sold exclusively through our contracted partner, Club Car, as part of a global multi-year sustainability solution development, sales and marketing agreement. We terminated production of the AYRO 411x in November 2022.
In addition, manufacturing and other automotive assembly facilities in the United States, Europe, and elsewhere are subject to stringent standards regulating air emissions, water discharges, and the handling and disposal of hazardous substances.
In addition, manufacturing and other automotive assembly facilities in the United States, Europe, and elsewhere are subject to stringent standards regulating air emissions, water discharges, and the handling and disposal of hazardous substances. The most significant standards and regulations affecting AYRO are discussed below.
Our closest competitor in the LSEV industry is the WAEV, Inc. (formerly Polaris) Gem (“Gem”). WAEV offers multiple passenger vehicle models and multiple utility vehicle models under the WAEV and Taylor-Dunn brands.
Our closest competitor in the LSEV industry is the WAEV, Inc. (formerly Polaris) Gem (“Gem”). WAEV offers multiple passenger vehicle models and multiple utility vehicle models under the WAEV and Taylor-Dunn brands. We expect competition in our industry to intensify over time.
We intend for the new Vanish to utilize assemblies and products that will largely eliminate our dependency on Chinese imports and optimize the supply chain to rely primarily upon North American and European sources. Final assembly of the Vanish will occur in our Round Rock, Texas facilities.
The Vanish utilizes assemblies and products that largely eliminate our dependency on Chinese imports and optimize the supply chain to rely primarily upon North American and European sources. Final assembly of the Vanish occurs in our Round Rock, Texas facilities.
Resources We sourced our semi-knocked-down kits for the model year 2022 AYRO 411 and 411x from Cenntro. While many of their components are commercial off-the-shelf (“COTS”) parts, many are specific to the 411 product and are subject to raw material limitations.
Resources We sourced our semi-knocked-down kits for the AYRO 411 Fleet from Cenntro. While some of their components were commercial off-the-shelf (“COTS”) parts, many were specific to the AYRO 411 Fleet and were subject to raw material limitations.
Motor Vehicle Safety The National Traffic and Motor Vehicle Safety Act of 1966, or “Safety Act,” regulates vehicles and vehicle equipment in two primary ways. First, the Safety Act prohibits the sale in the United States of any new vehicle or equipment that does not conform to applicable vehicle safety standards established by the National Highway Traffic Safety Administration (“NHTSA”).
First, the Safety Act prohibits the sale in the United States of any new vehicle or equipment that does not conform to applicable vehicle safety standards established by the National Highway Traffic Safety Administration (“NHTSA”).
Pollution Control Costs We are required to comply with stationary source air pollution, water pollution, and hazardous waste control standards that are now in effect or are scheduled to come into effect with respect to our manufacturing operations.
We are registered as a manufacturer in Texas, California, Colorado, Louisiana, Florida and Arizona. Pollution Control Costs We are required to comply with stationary source air pollution, water pollution, and hazardous waste control standards that are now in effect or are scheduled to come into effect with respect to our manufacturing operations.
Our product line roadmap contemplates growing our fleet of purpose-engineered vehicles and services with every passing model year, with a focus on the low-speed vehicle segment, last mile delivery of a plurality of payloads, and potential line extension into efficient, safe micro-mobility platforms.
Our product line roadmap contemplates growing our fleet of purpose-engineered vehicles and services with every passing model year, with a focus on the low-speed vehicle segment, last mile delivery of a plurality of payloads, and potential line extension into efficient, safe micro-mobility platforms. 8 Manufacturing and Supply Chain Manufacturing Agreement with Cenntro In 2017, AYRO Operating partnered with Cenntro in a supply chain agreement to provide sub-assembly manufacturing services.
To incentivize clean-energy use, many governments are increasingly instituting substantial incentives for consumers to purchase electric vehicles, such as: ● tax credits, rebates, and exemptions; ● reduced utility rates; and ● parking incentives.
To incentivize clean-energy use, many governments are increasingly instituting substantial incentives for consumers to purchase electric vehicles, such as: ● tax credits, rebates, and exemptions; ● reduced utility rates; and ● parking incentives. 11 Further, governments are establishing infrastructure benchmarks to support the growth of the electric vehicle industry.
Our four-wheeled purpose-built electric vehicles are geared toward commercial customers, including universities, business and medical campuses, last mile delivery services and food service providers. We are currently updating our model year 2023 vehicle lineup in support of the aforementioned markets.
Our four-wheeled purpose-built electric vehicles are geared toward commercial customers, including universities, business and medical campuses, last mile delivery services and food service providers. We have commenced sales and delivery of our current model, the AYRO Vanish (the “Vanish”), in support of the aforementioned markets.
Further, governments are establishing infrastructure benchmarks to support the growth of the electric vehicle industry. 9 Competition and Market Opportunities The worldwide automotive market, particularly for economy and alternative fuel vehicles, exhibits a high competitive intensity, especially amongst tier 1 competitors. The relatively modest LSEV market, being smaller in overall size, engenders a more modest competitive intensity.
Competition and Market Opportunities The worldwide automotive market, particularly for economy and alternative fuel vehicles, exhibits a high competitive intensity, especially amongst tier 1 competitors. The relatively modest LSEV market, being smaller in overall size, engenders a more modest competitive intensity.
The AYRO Vanish Fleet is expected to have a maximum payload capacity of 1,500 pounds. The AYRO Vanish is 13 feet long and can use either a conventional 120V or 240V wall outlet or can be configured for a J1772 charger.
The AYRO Vanish is 13 feet long and can use either a conventional 120V or 240V wall outlet or can be configured for a J1772 charger. The Vanish is expected to have a maximum payload capacity of 1,500 pounds. Each configuration can be further configured as a non-LSV, with such “non-LSV” variant having a higher payload capacity of 1,800 pounds.
As a result of rising shipping costs, quality issues with certain components and persistent delays, we ceased production of the AYRO 411x from Cenntro in September 2022 in order to focus our resources on the development and launch of the new 411 fleet vehicle model year 2023 refresh, the Vanish.
We ceased production of the 411x from Cenntro in September 2022 in order to focus our resources on the development and launch of the new 411 fleet vehicle model year 2023 refresh, the Vanish.
Old Settlers Blvd, Round Rock, Texas 78664. Our phone number is 512-994-4917. Our website address is www.ayro.com. The information on, or that can be accessed through, our website is not incorporated by reference into this Annual Report. We currently lease approximately 23,927 square feet of office and warehouse space under a lease that expires on February 28, 2027.
The information on, or that can be accessed through, our website is not incorporated by reference into this Annual Report on Form 10-K. We currently lease approximately 23,927 square feet of office and warehouse space under a lease that expires on February 28, 2027.
The most significant standards and regulations affecting AYRO are discussed below. 12 Mobile Source Emissions Control The federal Clean Air Act imposes stringent limits on the amount of regulated pollutants that may be lawfully emitted by new vehicles and engines produced for sale in the United States.
Mobile Source Emissions Control The federal Clean Air Act imposes stringent limits on the amount of regulated pollutants that may be lawfully emitted by new vehicles and engines produced for sale in the United States. The current (“Tier 2”) emissions regulations promulgated by the Environmental Protection Agency (the “EPA”) set standards for motorcycles.
Our test validation and inspection standards follow Federal Motor Vehicle Safety Standards (“FMVSS”) 49 CFR 571.500 for LSVs with the additions of SAE J585 and FMVSS 111 for rear visibility, lighting, signaling, reflectors, changes in direction of movement, back-up camera response timing and field of view.
Our test validation and inspection standards follow Federal Motor Vehicle Safety Standards (“FMVSS”) 49 CFR 571.500 for LSVs with the additions of SAE J585 and FMVSS 111 for rear visibility, lighting, signaling, reflectors, changes in direction of movement, back-up camera response timing and field of view. 15 Our development standards and test compliance validation processes are supported by a variety of test documentation, including supplier self-reporting, third party laboratory test reports and regional compliance validation with CARB for speed, range and environmental performance.
We will leverage either integrated traction or a separate battery power system to provide AC power to the various appliances and solution elements.
This is accomplished by integrating application-specific appliances, storage facilities, vehicle wraps and related items. We will leverage either integrated traction or a separate battery power system to provide AC power to the various appliances and solution elements.
In addition to finding innovative and safe ways to deliver food and beverages to their patrons, reducing and ultimately eliminating their carbon footprint is a top priority for many of these customers.
In addition to finding innovative and safe ways to deliver food and beverages to their patrons, reducing and ultimately eliminating their carbon footprint is a top priority for many of these customers. On November 2, 2023, we entered into a supply agreement with Sirris Inc., a provider in motor vehicle parts for innovative vehicle types.
The “non-LSV” variant has a higher payload capacity of 1,800 pounds. ● All three platforms will share identical components on common chassis architectures ● Spare and maintenance parts will identical for all three platforms ● Communication, application, and web-enabled software ● Allows for conversion into an autonomous platform ● Cost savings from reduced fleet size, reduced insurance overhang, common logistics, and application-enabled operational efficiencies.
Each configuration of the Vanish: ● Shares identical components on common chassis architectures; ● Includes identical spare and maintenance parts; ● Will have communication, application, and web-enabled software; ● Allows for conversion into an autonomous platform; and ● Provides potential cost savings from reduced fleet size, reduced insurance overhang, common logistics, and application-enabled operational efficiencies.
Business Strategy Our goal is to continue to develop and commercialize automotive-grade, sustainable electric transportation solutions for the markets and use cases that we believe can be well served by our purpose-built, street legal low speed electric vehicles. Our business strategy includes the following: 8 ● Scale up our operations to achieve growth.
This is a non-exclusive agreement in which we are able to engage other suppliers for these products. 10 Business Strategy Our goal is to continue to develop and commercialize automotive-grade, sustainable electric transportation solutions for the markets and use cases that we believe can be well served by our purpose-built, street legal low speed electric vehicles.
Gallery, with 40 years of experience delivering custom food kiosk solutions, has expanded into electric mobile delivery vehicles, as customers increasingly want food, beverages and merchandise delivered to where they are gathering. For example, a recent study conducted by Technomic found that a large majority of students, 77%, desired alternative mobile and to-go food options on campuses.
Gallery, with 40 years of experience delivering custom food kiosk solutions, has expanded into electric mobile delivery vehicles, as customers increasingly want food, beverages and merchandise delivered to where they are gathering.
We primarily focus on the LSEV North American market, which is highly competitive and constitutes 28% of the global LSEV market according to WiseGuy Reports. We have examined various considerations with regard to our market impact, including cost comparisons to existing vehicles in the market, market validation and target commercial markets.
Our LSEVs also offer a variety of specifications and equipment, meaning that consumers do not have to sacrifice comfort or convenience. We primarily focus on the LSEV North American market, which is highly competitive. We have examined various considerations with regard to our market impact, including cost comparisons to existing vehicles in the market, market validation and target commercial markets.
However, for AYRO Vanish, we have endeavored to reduce our supply risk by migrating our vehicle supply chain to the North American continent and by embracing parts and sub-assembly standardization, reducing discrete stock keeping units and simplifying logistical complexity. 11 Intellectual Property As we expand our vehicle and service roadmaps, and integrated technologies, our focus on identifying specific market and customer needs continues to drive purpose-built engineering efforts.
However, for AYRO Vanish, we have endeavored to reduce our supply risk by migrating our vehicle supply chain to the North American continent and by embracing parts and sub-assembly standardization, reducing discrete stock keeping units and simplifying logistical complexity.
The current (“Tier 2”) emissions regulations promulgated by the Environmental Protection Agency (the “EPA”) set standards for motorcycles. Tier 2 emissions standards also establish durability requirements for emissions components up to 5 years or 30,000 kilometers. California has received a waiver from the EPA to establish its own unique emissions control standards for certain regulated pollutants.
Tier 2 emissions standards also establish durability requirements for emissions components up to 5 years or 30,000 kilometers. 14 California has received a waiver from the EPA to establish its own unique emissions control standards for certain regulated pollutants. New vehicles and engines sold in California must be certified by the California Air Resources Board (“CARB”).
There will be three members of the AYRO Vanish fleet of vehicles (the “AYRO Vanish Fleet”): ● The Vanish Cargo Van Box, a fully enclosed cargo box, which may be internally tailored for use; ● The Vanish Flatbed truck, which provides users with considerable versatility; and ● The Vanish Pickup truck, generally utilized for open air hauling. 5 Each member of the AYRO Vanish Fleet will be classified as a street legal low speed vehicle (“LSV”) or non-LSV variant, defined as a four wheeled motor vehicle, other than an all-terrain vehicle, that is capable of reaching speeds of at least 20 miles per hour (“mph”) but not greater than 25 mph.
Each member of the AYRO Vanish Fleet is intended to be classified as a street legal low speed vehicle (“LSV”) or non-LSV variant, defined as a four wheeled motor vehicle, other than an all-terrain vehicle, that is capable of reaching speeds of at least 20 miles per hour (“mph”) but not greater than 25 mph.
Importantly, we are pursuing a strategy to increase our North American content in our vehicle platforms, starting with the AYRO Vanish Fleet. ● Identify defined markets and use cases which are currently under-served but represent sizable market opportunity sub-sets of the electric vehicle market and focus development efforts on purpose-built electric vehicles to address such markets.
The Company is evaluating its operations to align with anticipated market conditions for electric vehicles. ● Identify defined markets and use cases which are currently under-served but represent sizable market opportunity sub-sets of the electric vehicle market and focus development efforts on purpose-built electric vehicles to address such markets .
In this Annual Report on Form 10-K, unless the context otherwise requires, references to “we,” “us,” “our,” “our company,” “AYRO” and “Company” refer to AYRO, Inc. and its subsidiaries. Overview We design and manufacture compact, sustainable electric vehicles for closed campus mobility, low speed urban and community transport, local on-demand and last mile delivery and government use.
All share and per share information in this Annual Report on Form 10-K have been retroactively adjusted to reflect the Reverse Stock Split. Overview We design and manufacture compact, sustainable electric vehicles for closed campus mobility, low speed urban and community transport, local on-demand and last mile delivery and government use.
Retail focus on last mile delivery—the movement of goods from a transportation hub to the final delivery destination—has grown exponentially over the past few years due to the rise in online ordering and e-commerce. Consumers’ ability to pick and choose products based on delivery speed and availability makes last mile delivery a key differentiator among retailers.
Every major urban environment having a 35mph or less speed limit is a target market for our current and future LSV fleet. Last Mile Delivery Service Retail focus on last mile delivery—the movement of goods from a transportation hub to the final delivery destination—has grown exponentially over the past few years due to the rise in online ordering and e-commerce.
Such fleet overhauls, however, can be costly. LSEVs are a cheaper and more practical option for cities daunted by the cost of standard electronic vehicles. Our LSEVs have both on and off-road capabilities, making them particularly versatile for municipalities. On-Road and Personal Transportation. LSEVs offer a feasible and practical method of transportation, especially in urban centers.
Our LSEVs have both on and off-road capabilities, making them particularly versatile for municipalities. On-Road and Personal Transportation LSEVs offer a feasible and practical method of transportation, especially in urban centers. Because our LSEVs are street-legal, they offer city dwellers a more sustainable, cost-efficient, easily maneuverable, compact and light weight option compared to internal combustion engine vehicles.
Leveraging the all-electric AYRO 411x and Vanish Fleet LSVs, we intend to develop applications or use case solutions optimized for the logistics of storing and delivering food, beverages, merchandise, equipment, tools and related goods. This is accomplished by integrating application-specific appliances, storage facilities, vehicle wraps and related items.
Intellectual Property As we expand our vehicle and service roadmaps, and integrated technologies, our focus on identifying specific market and customer needs continues to drive purpose-built engineering efforts. 13 Leveraging the all-electric AYRO Vanish Fleet LSVs, we intend to develop applications or use case solutions optimized for the logistics of storing and delivering food, beverages, merchandise, equipment, tools and related goods.
We continue to focus on innovative and applicable electric vehicle optimization designs that serve an expanding customer and application use base. Patents We currently have United States registrations for two design patents. Both were issued on February 11, 2020 and will expire on February 11, 2035.
We continue to focus on innovative and applicable electric vehicle optimization designs that serve an expanding customer and application use base. Patents As of December 31, 2023, we held 11 granted United States patents, nine of which were granted in 2023. Of the 11 patents, five are design patents, and six are utility patents.
Retailers will likely expand the use of LSEV fleets to make deliveries in low emission zones due to their zero gas emissions and lower price than competing electric vehicles. Municipalities. As more city governments adopt regulations geared toward reducing pollution from vehicles, cities are increasingly looking to replace their municipal vehicles with zero-emission fleets.
Additionally, given the increasing designation of low emission zones in urban centers, retailers will need to continue to deploy eco-friendly vehicles. Retailers will likely expand the use of LSEV fleets to make deliveries in low emission zones due to their zero gas emissions and lower price than competing electric vehicles.
New vehicles and engines sold in California must be certified by the California Air Resources Board (“CARB”). CARB’s emissions standards for motorcycles are in line with those of the EPA. We currently expect that our vehicles will meet and exceed both the EPA’s and CARB’s standards.
CARB’s emissions standards for motorcycles are in line with those of the EPA. We currently expect that our vehicles will meet and exceed both the EPA’s and CARB’s standards. Motor Vehicle Safety The National Traffic and Motor Vehicle Safety Act of 1966, or “Safety Act,” regulates vehicles and vehicle equipment in two primary ways.
On December 20, 2022, we completed pre-production on our Model Year 2023 refresh vehicle, the AYRO Vanish. The Vanish will share no commonality with the legacy 411 platform and will be the product of a supply chain evolution from Asian suppliers to North America. We are registered as a manufacturer in Texas, California, Colorado, Louisiana, Florida and Arizona.
We commenced low-rate initial production of the Vanish in the second quarter of 2023 and commenced initial sales and delivery of the Vanish in the third quarter of 2023. The Vanish will share no commonality with the legacy 411 platform and will be the product of a supply chain evolution from Asian suppliers to North America.
All patents have been filed under accelerated consideration criteria due to the age (65) of the named inventor. Trademarks We have two granted trademark applications in the United States and abroad. We registered the word “AYRO” as United States Registration No. 88431321 on June 23, 2020.
In addition to these granted patents, as of December 31, 2023, we had more than 20 pending patent applications on file with the United States Patent and Trademark Office (“USPTO”). All patents have been filed under accelerated consideration criteria due to the age (65) of the named inventor. Trademarks Our products are marketed under a variety of valuable trademarks.
Last mile delivery provides retailers timelier and more convenient delivery options not offered by the main three shipping services in the U.S. (the U.S. Postal Service, FedEx, and UPS). Additionally, given the increasing designation of low emission zones in urban centers, retailers will need to continue to deploy eco-friendly vehicles.
Consumers’ ability to pick and choose products based on delivery speed and availability makes last mile delivery a key differentiator among retailers. Last mile delivery provides retailers timelier and more convenient delivery options not offered by the main three shipping services in the U.S. (the U.S. Postal Service, FedEx, and UPS).
In an effort to attract and retain quality employees, we offer industry-standard compensation and benefits packages to our employees and prospective employees. Geographic Areas We operate in the United States, and all our revenue was generated in the United States during the fiscal year ended December 31, 2022. Corporate Information Our corporate headquarters is located at 900 E.
Geographic Areas We operate in the United States, and all our revenue was generated in the United States during the fiscal years ended December 31, 2023 and 2022. Corporate Information Our corporate headquarters is located at 900 E. Old Settlers Blvd, Round Rock, Texas 78664. Our phone number is 512-994-4917. Our website address is www.ayro.com.
Segment Information We operate as one reportable segment, which is the design, development, manufacturing and sales of electric vehicles. Employees As of December 31, 2022, we had 44 full-time employees. None of our employees are represented by a labor union, and we maintain good relations with our employees. We have not furloughed employees due to the COVID-19 pandemic.
Segment Information We operate as one reportable segment, which is the design, development, manufacturing and sales of electric vehicles. Employees As of December 31, 2023, we had 58 full-time employees. In an effort to attract and retain quality employees, we offer industry-standard compensation and benefits packages to our employees and prospective employees.
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ITEM 1. BUSINESS. On May 28, 2020, pursuant to the previously announced Agreement and Plan of Merger, dated December 19, 2019 (the “Merger Agreement”), by and among AYRO, Inc., a Delaware corporation previously known as DropCar, Inc.
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ITEM 1. BUSINESS. In this Annual Report on Form 10-K, unless the context otherwise requires, references to “we,” “us,” “our,” “our company,” “AYRO” and “Company” refer to AYRO, Inc. and its subsidiaries. On September 15, 2023, we effected a one-for-eight reverse stock split of our common stock (the “Reverse Stock Split”).
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(“DropCar”), ABC Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company (“Merger Sub”), and AYRO Operating Company, Inc., a Delaware corporation previously known as AYRO, Inc.
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We began design and development of the Vanish in December 2021, including updates to our supply chain, the offshoring/onshoring mix, our manufacturing strategy, and our annual model year refresh program. We commenced low-rate initial production of the Vanish in the second quarter of 2023 and commenced initial sales and delivery of the Vanish in the third quarter of 2023.
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(“AYRO Operating”), Merger Sub was merged with and into AYRO Operating, with AYRO Operating continuing after the merger as the surviving entity and a wholly owned subsidiary of the Company (the “Merger”).
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Recent Developments On January 31, 2024, we implemented an internal restructuring in order to achieve greater efficiency in pursuit of our strategic goals. As part of the restructuring, amongst other things, we eliminated a substantial number of positions as we re-evaluate our sales, marketing and manufacturing functions.
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Pre-production was completed in December 2022 and we expect to begin accepting pre-orders in the second quarter of 2023.
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Following the internal restructuring, as of March 22, 2024, we have 14 full-time employees.
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We are also currently in discussions with a key supply partner on positioning the model year 2023 Vanish for sale on the General Services Administration schedule (“GSA Schedule”). The GSA Schedule is a long-term government-wide contract with commercial companies that provides access to millions of commercial products and services at pre-negotiated prices.
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We commenced low-rate initial production of the Vanish in the second quarter of 2023 and commenced initial sales and delivery of the Vanish in the third quarter of 2023. 7 There will be three available configurations of the Vanish (the “AYRO Vanish Fleet”): ● The Vanish Cargo Van Box, a fully enclosed cargo box, which may be internally tailored for use; ● The Vanish Flatbed truck, which provides users with considerable versatility; and ● The Vanish Pickup Bed truck, generally utilized for open air hauling.
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This would represent an increase of the total addressable market for the Company and further represent a demand hedge to the cyclicality of markets currently addressed. 6 Manufacturing and Supply Chain Manufacturing Agreement with Cenntro In 2017, AYRO Operating partnered with Cenntro in a supply chain agreement to provide sub-assembly manufacturing services.
Added
Club Car MPA Termination The majority of our sales have historically been comprised of sales to Club Car pursuant to a master procurement agreement (the “MPA”) entered into by and among AYRO Operating Company, Inc., our subsidiary (“AYRO Operating”), and Club Car on March 5, 2019.
Removed
We intend to direct resources to scale up our operations, which we believe is needed to increase our revenue, including expanding and optimizing our automotive component supply chain and our flow-based assembly operations in Round Rock, Texas.
Added
The MPA granted Club Car the exclusive right to sell the AYRO 411 Fleet in North America, provided that Club Car ordered at least 500 vehicles per year. Club Car did not meet this volume threshold for 2020, 2021 or 2022.
Removed
Further, we plan to expand sales territories and add distribution channels, forming strategic partnerships to build out our whole product offering across multiple segments and to access additional sales channels or to accelerate product adoption for particular vertical markets, building our brand, and increasing manufacturing capacity to produce higher volumes of electric vehicles.
Added
Pursuant to the MPA, AYRO Operating granted Club Car a right of first refusal for sales of 51% or more of AYRO Operating’s assets or equity interests, which right of first refusal is exercisable for a period of 45 days following delivery of an acquisition notice to Club Car.
Removed
While the GEM el XD model, which is similar to vehicles in the AYRO 411x Fleet, has a lower starting MSRP than the AYRO 411x, the GEM el XD requires reconfiguration to match the standard AYRO 411x features, raising the final MSRP of each vehicle above that of the AYRO 411x Fleet alternative and above the expected MSRP of the Vanish.
Added
AYRO Operating also agreed to collaborate with Club Car on new products similar to the AYRO 411 Fleet and improvements to existing products and granted Club Car a right of first refusal to purchase similar commercial utility vehicles which AYRO Operating may develop during the term of the MPA. 9 On April 4, 2023, AYRO Operating delivered notice of termination of the MPA to Club Car, and we intend to replace Club Car with new business partners for selling our products beginning with the Vanish.
Removed
The AYRO 411x Fleet has, and the Vanish is expected to have, a greater bed and box capacity, 13% more horsepower and a 48% better turning radius, allowing use of our in tighter spaces than are possible using the GEM el XD. We expect competition in our industry to intensify over time.
Added
We do not expect Club Car to remain a customer going forward. In connection with the termination of the MPA and the introduction of the Vanish, we are reevaluating our channel strategy with an eye towards distributing our next-generation platform and payloads in a manner that maximizes visibility, moderates channel costs, and creates value.
Removed
Food Delivery Services. As the millennial generation assumes a more substantial portion of the consumer population, customers increasingly favor convenience and timeliness, spurring dramatic growth in online ordering and delivery services across a wide swath of industries, including food delivery and restaurant ordering services.
Added
The loss of Club Car as a customer could have a material adverse effect on our sales, financial condition, and results of operations.
Removed
Food delivery sales are anticipated to increase over 20% per year, culminating in an expected $365 billion worldwide by 2030, according to Upserve. Upserve further estimates that approximately 60% of U.S. consumers report that they order delivery or takeout at least once a week.
Added
Sirris has agreed to supply rear and front shocks to support the manufacturing of our electric vehicle fleet. Sirris is committed to meeting our upside demand for these products in the event production increases. On December 21, 2023, we entered into a supply agreement with Athena Manufacturing, LP, a provider of customizable sophisticated metal products.
Removed
Within the next decade, potentially over 40% of restaurant sales will be attributable to delivery services, according to Morgan Stanley. Every major urban environment having a 35mph or less speed limit is a target market for our current and future LSV fleet. 10 Last Mile Delivery Service.
Added
As part of the agreement, we are able to submit devices, component, component assembly, material part, or piece that is custom to AYRO.
Removed
Because our LSEVs are street-legal, they offer city dwellers a more sustainable, cost-efficient, easily maneuverable, compact and light weight option compared to internal combustion engine vehicles. Our LSEVs also offer a variety of specifications and equipment, meaning that consumers do not have to sacrifice comfort or convenience.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIf we are unable to develop such manufacturing capabilities and processes, we may need to find a third party manufacturer, which may not be cost-effective and could expose us to a number of additional risks that are outside our control, including: ● unexpected increases in manufacturing costs; ● interruptions in shipments if a third-party contract manufacturing partner is unable to complete production in a timely manner; ● reduced control over delivery schedules; ● reduced control over manufacturing levels and our ability to meet minimum volume commitments to our customers; ● reduced control over manufacturing yield; and ● reduced control over manufacturing capacity.
Biggest changeEven if we are successful in developing high-volume manufacturing capability and processes, we do not know whether we will be able to do so in a manner that avoids significant delays and cost overruns, including as a result of factors beyond our control such as problems with suppliers and vendors or force majeure events, meets our product commercialization and manufacturing schedules and satisfies the requirements of customers and potential customers. 18 If we are unable to develop such manufacturing capabilities and processes, we may need to find a third party manufacturer, which may not be cost-effective and could expose us to a number of additional risks that are outside our control, including: ● unexpected increases in manufacturing costs; ● interruptions in shipments if a third-party contract manufacturing partner is unable to complete production in a timely manner; ● reduced control over delivery schedules; ● reduced control over manufacturing levels and our ability to meet minimum volume commitments to our customers; ● reduced control over manufacturing yield; and ● reduced control over manufacturing capacity.
Besides the other risks in this “Risk Factors” section, factors that may affect our operations include: ● fluctuations in demand for our products; ● the inherent complexity, length, and associated unpredictability of product development windows and product lifecycles; ● changes in customers’ budgets for technology purchases and delays in their purchasing cycles; ● changes in customer preferences; ● changing market conditions; ● any significant changes in the competitive dynamics of our markets, including new entrants or further consolidation; ● our ability to continue to broaden our customer and dealer base beyond our traditional customers and dealers; ● our ability to broaden our geographical markets; ● the timing of product releases or upgrades by us or our competitors; and ● our ability to develop, introduce, and ship in a timely manner new products and product enhancements and anticipate future market demands that meet customers’ requirements.
Besides the other risks in this “Risk Factors” section, factors that may affect our operations include: ● fluctuations in demand for our products; ● the inherent complexity, length, and associated unpredictability of product development windows and product lifecycles; ● changes in customers’ budgets for technology purchases and delays in their purchasing cycles; ● changes in customer preferences; ● changing market conditions; ● any significant changes in the competitive dynamics of our markets, including new entrants or further consolidation; 20 ● our ability to continue to broaden our customer and dealer base beyond our traditional customers and dealers; ● our ability to broaden our geographical markets; ● the timing of product releases or upgrades by us or our competitors; and ● our ability to develop, introduce, and ship in a timely manner new products and product enhancements and anticipate future market demands that meet customers’ requirements.
There is a range of risks inherent in such a strategy that could adversely affect our ability to successfully achieve these objectives, including, but not limited to, the following: ● the potential failure to successfully operate our dealer-distribution channels; 18 ● an inability to attract and retain customers, employees, suppliers and/or marketing partners; ● the uncertainty that we may not be able to generate, anticipate or meet consumer demand; ● the potential disruption of our business; ● the increased scope and complexity of our operations could require significant attention from management and impose constraints on our operations or other projects; ● inconsistencies between our standards, procedures and policies and those of new points of sale or dealerships, and costs or inefficiencies associated with the integration of our operational and administrative systems, if necessary; ● unforeseen expenses, delays or conditions, including the potential for increased regulatory compliance or other third-party approvals or consents, or provisions in contracts with third parties that could limit our flexibility to take certain actions; ● the costs of compliance with local laws and regulations and the implementation of compliance processes, as well as the assumption of unexpected labilities, litigation, penalties or other enforcement actions; ● the uncertainty that new product lines or ancillary services will generate anticipated sales; ● the uncertainty that the expanded operations will achieve anticipated operating results; ● the difficulty of managing the operations of a larger company; ● the difficulty of competing for growth opportunities with companies that have greater financial resources than us; and ● the ability of our suppliers to support consumer demand.
There is a range of risks inherent in such a strategy that could adversely affect our ability to successfully achieve these objectives, including, but not limited to, the following: ● the potential failure to successfully operate our dealer-distribution channels; ● an inability to attract and retain customers, employees, suppliers and/or marketing partners; ● the uncertainty that we may not be able to generate, anticipate or meet consumer demand; ● the potential disruption of our business; ● the increased scope and complexity of our operations could require significant attention from management and impose constraints on our operations or other projects; ● inconsistencies between our standards, procedures and policies and those of new points of sale or dealerships, and costs or inefficiencies associated with the integration of our operational and administrative systems, if necessary; ● unforeseen expenses, delays or conditions, including the potential for increased regulatory compliance or other third-party approvals or consents, or provisions in contracts with third parties that could limit our flexibility to take certain actions; ● the costs of compliance with local laws and regulations and the implementation of compliance processes, as well as the assumption of unexpected labilities, litigation, penalties or other enforcement actions; ● the uncertainty that new product lines or ancillary services will generate anticipated sales; ● the uncertainty that the expanded operations will achieve anticipated operating results; ● the difficulty of managing the operations of a larger company; 21 ● the difficulty of competing for growth opportunities with companies that have greater financial resources than us; and ● the ability of our suppliers to support consumer demand.
Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. 34 Legal proceedings or third-party claims of intellectual property infringement and other challenges may require us to spend substantial time and money and could harm our business.
Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Legal proceedings or third-party claims of intellectual property infringement and other challenges may require us to spend substantial time and money and could harm our business.
If we are unable to manage future expansion, our ability to provide high quality products could be harmed, damage our reputation and brand, and may have a material adverse effect on our business, operating results and financial condition. If we fail to include key feature sets relative to the target markets for our electric vehicles, our business will be harmed.
If we are unable to manage future expansion, our ability to provide high quality products could be harmed, damage our reputation and brand, and may have a material adverse effect on our business, operating results and financial condition. 24 If we fail to include key feature sets relative to the target markets for our electric vehicles, our business will be harmed.
There can be no assurance that we will be able to recoup increasing costs of raw materials by increasing vehicle prices. Customer financing and insuring our vehicles may prove difficult because retail lenders are unfamiliar with our vehicles and our vehicles have a limited loss history determining residual values within the insurance industry.
There can be no assurance that we will be able to recoup increasing costs of raw materials by increasing vehicle prices. 29 Customer financing and insuring our vehicles may prove difficult because retail lenders are unfamiliar with our vehicles and our vehicles have a limited loss history determining residual values within the insurance industry.
As such, we may be required to either acquire and maintain a facility in multiple states, or incur additional costs of delivery of the vehicle, which consequently increases the cost and/or sales price of our vehicles and makes our vehicles less desirable to end-customers. 31 We have identified a material weakness in our internal control over financial reporting.
As such, we may be required to either acquire and maintain a facility in multiple states, or incur additional costs of delivery of the vehicle, which consequently increases the cost and/or sales price of our vehicles and makes our vehicles less desirable to end-customers. We have identified a material weakness in our internal control over financial reporting.
As a result, our business, prospects, operating results and financial condition will be negatively impacted and our ability to grow our business will be harmed. Furthermore, as the scale of our vehicle production increases, we will need to accurately forecast, purchase, warehouse and transport to our manufacturing facilities components at much higher volumes than we have done in the past.
As a result, our business, prospects, operating results and financial condition will be negatively impacted and our ability to grow our business will be harmed. 27 Furthermore, as the scale of our vehicle production increases, we will need to accurately forecast, purchase, warehouse and transport to our manufacturing facilities components at much higher volumes than we have done in the past.
These legal requirements vary by location and can arise under federal, provincial, state or municipal laws. Any breach of such laws and/or requirements would have a material adverse effect on our company and our operating results. 30 Changes in regulations could render our vehicles incompatible with federal, state or local regulations, or use cases.
These legal requirements vary by location and can arise under federal, provincial, state or municipal laws. Any breach of such laws and/or requirements would have a material adverse effect on our company and our operating results. Changes in regulations could render our vehicles incompatible with federal, state or local regulations, or use cases.
Any or all of these issues could negatively impact our competitive advantage and our ability to obtain new customers, thereby adversely affecting our financial results. Our proprietary designs are susceptible to reverse engineering by our competitors. Much of the value of our proprietary rights is derived from our vast library of design specifications.
Any or all of these issues could negatively impact our competitive advantage and our ability to obtain new customers, thereby adversely affecting our financial results. 37 Our proprietary designs are susceptible to reverse engineering by our competitors. Much of the value of our proprietary rights is derived from our vast library of design specifications.
If we are unable to successfully remediate our existing material weakness or any additional material weaknesses in our internal control over financial reporting that may be identified in the future in a timely manner, the accuracy and timing of our financial reporting may be adversely affected; our liquidity, our access to capital markets, the perceptions of our creditworthiness may be adversely affected; we may be unable to maintain or regain compliance with applicable securities laws, the listing requirements of the Nasdaq Stock Market; we may be subject to regulatory investigations and penalties; investors may lose confidence in our financial reporting; our reputation may be harmed; and our stock price may decline. 32 Risks Related to Our Intellectual Property If we are unable to adequately protect our proprietary designs and intellectual property rights, our competitive position could be harmed.
If we are unable to successfully remediate our existing material weakness or any additional material weaknesses in our internal control over financial reporting that may be identified in the future in a timely manner, the accuracy and timing of our financial reporting may be adversely affected; our liquidity, our access to capital markets, the perceptions of our creditworthiness may be adversely affected; we may be unable to maintain or regain compliance with applicable securities laws, the listing requirements of the Nasdaq Stock Market; we may be subject to regulatory investigations and penalties; investors may lose confidence in our financial reporting; our reputation may be harmed; and our stock price may decline. 36 Risks Related to Our Intellectual Property If we are unable to adequately protect our proprietary designs and intellectual property rights, our competitive position could be harmed.
Continuation of or increased excess capacity could have a substantial adverse effect on our financial condition and results of operations. 19 New entrants seeking to gain market share by introducing new technology, attractive feature sets, new products and development of longer-life power packs may make it more difficult for us to sell our vehicles and earn design wins which could create increased pricing pressure, reduced profit margins, increased sales and marketing expenses, or the loss of market share or expected market share, any of which may significantly harm our business, operating results and financial condition.
Continuation of or increased excess capacity could have a substantial adverse effect on our financial condition and results of operations. 22 New entrants seeking to gain market share by introducing new technology, attractive feature sets, new products and development of longer-life power packs may make it more difficult for us to sell our vehicles and earn design wins which could create increased pricing pressure, reduced profit margins, increased sales and marketing expenses, or the loss of market share or expected market share, any of which may significantly harm our business, operating results and financial condition.
Failure to maintain our expertise and inability to deliver custom, specific design systems could harm our business. 21 Unanticipated changes in industry standards could render our vehicles incompatible with such standards and adversely affect our business.
Failure to maintain our expertise and inability to deliver custom, specific design systems could harm our business. Unanticipated changes in industry standards could render our vehicles incompatible with such standards and adversely affect our business.
We may not be able to secure additional product liability insurance coverage on commercially acceptable terms or at reasonable costs when needed, particularly if we do face liability for our vehicles and are forced to make a claim under our policy. 23 If our vehicles fail to perform as expected due to defects, our ability to develop, market and sell our electric vehicles could be seriously harmed.
We may not be able to secure additional product liability insurance coverage on commercially acceptable terms or at reasonable costs when needed, particularly if we do face liability for our vehicles and are forced to make a claim under our policy. 26 If our vehicles fail to perform as expected due to defects, our ability to develop, market and sell our electric vehicles could be seriously harmed.
Our failure to address additional market opportunities could materially harm our business, financial condition, operating results and prospects. 22 Unforeseen or recurring operational problems at our facilities, or a catastrophic loss of our manufacturing facilities, may cause significant lost or delayed production and adversely affect our results operations.
Our failure to address additional market opportunities could materially harm our business, financial condition, operating results and prospects. 25 Unforeseen or recurring operational problems at our facilities, or a catastrophic loss of our manufacturing facilities, may cause significant lost or delayed production and adversely affect our results operations.
Any change in fleet replacement timing, average fleet age, or fleet maintenance demands may have a material impact on the business. 27 Failure in our information technology and storage systems could significantly disrupt the operation of our business.
Any change in fleet replacement timing, average fleet age, or fleet maintenance demands may have a material impact on the business. 30 Failure in our information technology and storage systems could significantly disrupt the operation of our business.
Our inability to alter our products to address these requirements and any regulatory changes may have a material adverse effect on our business, operating results and financial condition. 36 ITEM 1B. UNRESOLVED STAFF COMMENTS. None.
Our inability to alter our products to address these requirements and any regulatory changes may have a material adverse effect on our business, operating results and financial condition. 39 ITEM 1B. UNRESOLVED STAFF COMMENTS. None.
This has materially and adversely affected our business and financial results for the fiscal year ended December 31, 2022 and could continue to materially and adversely affect our business and financial results throughout 2023.
This has materially and adversely affected our business and financial results for the fiscal year ended December 31, 2023 and could continue to materially and adversely affect our business and financial results throughout 2024.
Disruptions or shutdowns at our assembly facility could be caused by ● maintenance outages to conduct maintenance activities that cannot be performed safely during operations; ● pandemics, including the COVID-19 pandemic, and related governmental responses that may restrict our ability to operate; ● prolonged power failures or reductions; ● breakdown, failure or substandard performance of any of our machines or other equipment; ● noncompliance with, and liabilities related to, environmental requirements or permits; ● disruptions in the transportation infrastructure, including railroad tracks, bridges, tunnels or roads; ● fires, floods, snow or ice storms, earthquakes, tornadoes, hurricanes, microbursts or other catastrophic disasters, national emergencies, political unrest, economic sanctions, war or terrorist activities; ● other operational problems; or ● availability of parts, including both batteries and semiconductors, which are used to produce many components of our vehicles.
Disruptions or shutdowns at our assembly facility could be caused by ● maintenance outages to conduct maintenance activities that cannot be performed safely during operations; ● prolonged power failures or reductions; ● breakdown, failure or substandard performance of any of our machines or other equipment; ● noncompliance with, and liabilities related to, environmental requirements or permits; ● disruptions in the transportation infrastructure, including railroad tracks, bridges, tunnels or roads; ● fires, floods, snow or ice storms, earthquakes, tornadoes, hurricanes, microbursts or other catastrophic disasters, national emergencies, political unrest, economic sanctions, war or terrorist activities; ● other operational problems; or ● availability of parts, including both batteries and semiconductors, which are used to produce many components of our vehicles.
Acquisitions may expose us to operational challenges and risks, including: ● the ability to profitably manage acquired businesses or successfully integrate the acquired businesses’ operations, personnel, financial reporting, accounting and internal controls, technologies and products into our business; ● increased indebtedness and the expense of integrating acquired businesses, including significant administrative, operational, economic, geographic or cultural challenges in managing and integrating the expanded or combined operations; ● entry into jurisdictions or acquisition of products or technologies with which we have limited or no prior experience, and the potential of increased competition with new or existing competitors as a result of such acquisitions; ● diversion of management’s attention and the over-extension of our operating infrastructure and our management systems, information technology systems, and internal controls and procedures, which may be inadequate to support growth; ● the ability to fund our capital needs and any cash flow shortages that may occur if anticipated revenue is not realized or is delayed, whether by general economic or market conditions, or unforeseen internal difficulties; and ● the ability to retain or hire qualified personnel required for expanded operations. 29 Our acquisition strategy may not succeed if we are unable to remain attractive to target companies or expeditiously close transactions.
Acquisitions may expose us to operational challenges and risks, including: ● the ability to profitably manage acquired businesses or successfully integrate the acquired businesses’ operations, personnel, financial reporting, accounting and internal controls, technologies and products into our business; 32 ● increased indebtedness and the expense of integrating acquired businesses, including significant administrative, operational, economic, geographic or cultural challenges in managing and integrating the expanded or combined operations; ● entry into jurisdictions or acquisition of products or technologies with which we have limited or no prior experience, and the potential of increased competition with new or existing competitors as a result of such acquisitions; ● diversion of management’s attention and the over-extension of our operating infrastructure and our management systems, information technology systems, and internal controls and procedures, which may be inadequate to support growth; ● the ability to fund our capital needs and any cash flow shortages that may occur if anticipated revenue is not realized or is delayed, whether by general economic or market conditions, or unforeseen internal difficulties; and ● the ability to retain or hire qualified personnel required for expanded operations.
While such costs and failure rates have historically been within management’s expectations and the provisions established and we receive warranty coverage from our vendors, unexpected changes in failure rates could have a material adverse impact on our business requiring additional warranty reserves.
While such costs and failure rates have historically been within management’s expectations and the provisions established and we receive warranty coverage from our vendors, unexpected changes in failure rates could have a material adverse impact on our business requiring additional warranty reserves. These failures could adversely impact our operating results.
Based upon our current expectations, we believe that our existing capital resources will enable us to continue planned operations through at least March 23, 2024. However, we cannot assure you that our plans will not change or that changed circumstances will not result in the depletion of our capital resources more rapidly than we currently anticipate.
Based upon our current expectations, we believe that our existing capital resources will enable us to continue planned operations through at least April 1, 2025. However, we cannot assure you that our plans will not change or that changed circumstances will not result in the depletion of our capital resources more rapidly than we currently anticipate.
Although none of our employees are currently represented by a labor union, it is common throughout the automobile industry generally for many employees at automobile companies to belong to a union, which can result in higher employee costs and increased risk of work stoppages.
Our business may be adversely affected by labor and union activities. Although none of our employees are currently represented by a labor union, it is common throughout the automobile industry generally for many employees at automobile companies to belong to a union, which can result in higher employee costs and increased risk of work stoppages.
If there is lower market demand for our electric vehicles than we expect in the target markets, which include universities, food delivery services, last mile delivery service, municipalities and on-road and personal transportation, our business, prospects, financial condition and operating results will be negatively impacted.
Our future growth depends on customers’ willingness to adopt electric vehicles. If there is lower market demand for our electric vehicles than we expect in the target markets, which include universities, food delivery services, last mile delivery service, municipalities and on-road and personal transportation, our business, prospects, financial condition and operating results will be negatively impacted.
Our products are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations and various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls. Exports of our products must be made in compliance with these laws and regulations.
Export Administration Regulations, U.S. Customs regulations and various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls. Exports of our products must be made in compliance with these laws and regulations.
These failures could adversely impact our operating results. 25 Increases in costs, disruption of supply or shortage of raw materials, including but not limited to lithium-ion battery cells, chipsets and displays, could harm our business We may experience increases in the cost or a sustained interruption in the supply or shortage of raw materials, including lithium-ion battery cells, semiconductors, and integrated circuits.
Increases in costs, disruption of supply or shortage of raw materials, including but not limited to lithium-ion battery cells, chipsets and displays, could harm our business We may experience increases in the cost or a sustained interruption in the supply or shortage of raw materials, including lithium-ion battery cells, semiconductors, and integrated circuits.
We recently experienced business disruptions due to multiple factors brought about by the COVID-19 pandemic, such as supply and demand imbalance, a shortage of warehouse workers, truck drivers, transport equipment (tractors and trailers) and other causes, which have resulted in heightened congestion, bottlenecks and gridlock, leading to abnormally high transportation delays.
In the past, we have experienced business disruptions due to factors such as supply and demand imbalance, a shortage of warehouse workers, truck drivers, transport equipment (tractors and trailers) and other causes, which have resulted in heightened congestion, bottlenecks and gridlock, leading to abnormally high transportation delays.
Furthermore, there is some risk of electrocution if individuals who attempt to repair battery packs on our vehicles do not follow applicable maintenance and repair protocols. Any such damage or injury would likely lead to adverse publicity and potentially a safety recall.
Furthermore, there is some risk of electrocution if individuals who attempt to repair battery packs on our vehicles do not follow applicable maintenance and repair protocols. Any such damage or injury would likely lead to adverse publicity and potentially a safety recall. Any such adverse publicity could adversely affect our business, prospects, financial condition and operating results.
If our vehicles are not adopted or there is a reduction in demand for our products caused by a lack of customer acceptance, a slowdown in demand for electronic transportation solutions, battery safety concerns, technological challenges, battery life issues, competing technologies and products, decreases in discretionary spending, weakening economic conditions, or otherwise, the reduction in demand could result in reduced customer orders, early order cancellations, the loss of customers, or decreased sales, any of which would adversely affect our business, operating results, and financial condition. 20 If we are unable to manage our growth and expand our operations successfully, our business and operating results will be harmed, and our reputation may be damaged.
If our vehicles are not adopted or there is a reduction in demand for our products caused by a lack of customer acceptance, a slowdown in demand for electronic transportation solutions, battery safety concerns, technological challenges, battery life issues, competing technologies and products, decreases in discretionary spending, weakening economic conditions, or otherwise, the reduction in demand could result in reduced customer orders, early order cancellations, the loss of customers, or decreased sales, any of which would adversely affect our business, operating results, and financial condition.
The design, manufacture, sale and servicing of vehicles is a capital-intensive business, and we may need to raise additional funds to expand our operations and reach vehicle production goals. At December 31, 2022, we had working capital of approximately $49.8 million.
The design, manufacture, sale and servicing of vehicles is a capital-intensive business, and we may need to raise additional funds to expand our operations and reach vehicle production goals. At December 31, 2023, we had working capital of approximately $44,670,150.
As a result, in the case of infringement claims against these sales channel partners and end-customers, we could be required to indemnify them for losses resulting from such claims or to refund amounts they have paid to us.
As a result, in the case of infringement claims against these sales channel partners and end-customers, we could be required to indemnify them for losses resulting from such claims or to refund amounts they have paid to us. Our sales channel partners and other end-customers in the future may seek indemnification from us in connection with infringement claims brought.
Our management performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2022 and concluded our internal control over financial reporting was not effective as of December 31, 2022 due to the material weakness related to segregation of duties.
Our management performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2023 and concluded our internal control over financial reporting was not effective as of December 31, 2023 due to the material weakness related to segregation of duties and reliance on outside consultants for external reporting.
The terms of any securities issued by us in future capital transactions may be more favorable to new investors, and may include preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect on the holders of any of our securities then outstanding.
The terms of any securities issued by us in future capital transactions may be more favorable to new investors, and may include preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect on the holders of any of our securities then outstanding. 31 The terms of debt securities we may have to issue or future borrowings we may have to incur to fund our operations could impose significant restrictions on our operations.
If we are unable to accurately match the timing and quantities of component purchases to our actual production plans or capabilities, or successfully implement automation, inventory management and other systems to accommodate the increased complexity in our supply chain, we may have to incur unexpected storage, transportation and write-off costs, which could have a material adverse effect on our financial condition and operating results. 24 We currently have limited electric vehicles marketing and sales experience, and if we are unable to establish sales and marketing capabilities or enter into dealer agreements to market and sell our vehicles, we may be unable to generate any revenue.
If we are unable to accurately match the timing and quantities of component purchases to our actual production plans or capabilities, or successfully implement automation, inventory management and other systems to accommodate the increased complexity in our supply chain, we may have to incur unexpected storage, transportation and write-off costs, which could have a material adverse effect on our financial condition and operating results.
The global shipping industry recently experienced a shortage of shipping capacity, trucking shortages, increased ocean shipping rates and increased trucking and fuel costs. As a result, our receipt of imported products has been, and may continue to be, disrupted or delayed.
We rely heavily on third parties, including ocean carriers and truckers, in that process. The global shipping industry has experienced a shortage of shipping capacity, trucking shortages, increased ocean shipping rates and increased trucking and fuel costs. As a result, our receipt of imported products has been, and may continue to be, disrupted or delayed.
We experienced net losses of approximately $22.9 million and $33.1 million for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, we had an accumulated deficit of approximately $81.1 million.
We experienced net losses of approximately $34.2 million and $22.9 million for the years ended December 31, 2023 and 2022. As of December 31, 2023, we had an accumulated deficit of approximately $115.3 million.
Any such future growth would also add complexity to and require effective coordination throughout our organization. Our future operating results depend to a large extent on our ability to manage this expansion and growth successfully.
The growth and expansion of our business and product offerings places a continuous and significant strain on our management, operational and financial resources. Any such future growth would also add complexity to and require effective coordination throughout our organization. Our future operating results depend to a large extent on our ability to manage this expansion and growth successfully.
Our limited operating history makes evaluating our business and prospects difficult and may increase the risk of investment. Our operating results have fluctuated in the past and may fluctuate significantly in the future, which makes it difficult to predict our future operating results.
Our operating results have fluctuated in the past and may fluctuate significantly in the future, which makes it difficult to predict our future operating results.
Any decisions on advancing, reprioritizing or eliminating any of our products will be based on an evaluation of a number of factors, including our assessment of internal and external resources, the potential market for such products, the costs and complexities of manufacturing, the potential of competing products, as well as the likelihood of any challenges to our intellectual property, regardless of merit.
Any decisions on advancing, reprioritizing or eliminating any of our products will be based on an evaluation of a number of factors, including our assessment of internal and external resources, the potential market for such products, the costs and complexities of manufacturing, the potential of competing products, as well as the likelihood of any challenges to our intellectual property, regardless of merit. 19 If disruptions in our transportation network continue to occur or our shipping costs continue to increase, we may be unable to sell or timely deliver our products, and our gross margin could decrease.
In the event of an adverse outcome in any such litigation, we may, among other things, be required to: ● pay substantial damages; ● cease the development, manufacture, use, sale or importation of products that infringe upon other patented intellectual property; ● expend significant resources to develop or acquire non-infringing intellectual property; ● discontinue processes incorporating infringing technology; or ● obtain licenses to the infringing intellectual property, which licenses may not be available on acceptable terms, or at all.
In the event of an adverse outcome in any such litigation, we may, among other things, be required to: ● pay substantial damages; ● cease the development, manufacture, use, sale or importation of products that infringe upon other patented intellectual property; ● expend significant resources to develop or acquire non-infringing intellectual property; ● discontinue processes incorporating infringing technology; or ● obtain licenses to the infringing intellectual property, which licenses may not be available on acceptable terms, or at all. 38 We are generally obligated to indemnify our sales channel partners, customers, suppliers and contractors for certain expenses and liabilities resulting from intellectual property infringement claims regarding our products, which could force us to incur substantial costs.
Rigorous testing and the use of approved materials and equipment are among the requirements for achieving federal certification. Failure of the AYRO Vanish Fleet or future vehicle models to satisfy motor vehicle standards would have a material adverse effect on our business and operating results.
Failure of the AYRO Vanish Fleet or future vehicle models to satisfy motor vehicle standards would have a material adverse effect on our business and operating results.
As part of our strategy to minimize our capital expenditures on manufacturing infrastructure, we currently rely on Linamar for certain sub-assembly and assembly parts for the Vanish.
Any disruption in the operations of this third-party supplier could adversely affect our business and results of operations. As part of our strategy to minimize our capital expenditures on manufacturing infrastructure, we currently rely on Linamar for certain sub-assembly and assembly parts for the Vanish.
Additionally, if increases in fuel prices occur, our transportation costs would likely further increase. Similarly, supply chain disruptions such as those described in the preceding paragraphs may lead to an increase in transportation costs.
Additionally, if increases in fuel prices occur, our transportation costs would likely further increase. Similarly, supply chain disruptions such as those described in the preceding paragraphs may lead to an increase in transportation costs. Such cost increases have adversely affected our business and could have additional adverse effects on our business, prospects, financial condition and operating results.
We record an estimate for anticipated warranty-related costs at the time of sale based on historical and estimated future product return rates and expected repair or replacement costs.
While defects in the individual parts for our vehicles are currently reimbursed by our supply chain, warranty labor is our responsibility. We record an estimate for anticipated warranty-related costs at the time of sale based on historical and estimated future product return rates and expected repair or replacement costs.
We offer a product warranty to cover defective products at no cost to the customer. An unexpected change in failure rates of our products could have a material adverse impact on our business, financial condition and operating results.
An unexpected change in failure rates of our products could have a material adverse impact on our business, financial condition and operating results. We offer product warranties that generally extend for two years from date of sale that require us to repair or replace defective products returned by the customer during the warranty period at no cost to the customer.
If we were to lose or otherwise be unable to maintain these licenses for any reason, it would halt our ability to manufacture and sell our vehicles or may prohibit development of our future models, which could result in a material adverse effect on our business or results of operations. 33 In addition, if we do not own the patents or patent applications that we license, as is the case with the AYRO 411x’s patents, we may need to rely upon our licensors to properly prosecute and maintain those patent applications and prevent infringement of those patents.
If we were to lose or otherwise be unable to maintain these licenses for any reason, it would halt our ability to manufacture and sell our vehicles or may prohibit development of our future models, which could result in a material adverse effect on our business or results of operations.
Additionally, over time, a battery’s ability to hold its initial charge will degrade. While expected in electric vehicle applications, such battery deterioration and the related decrease in range may negatively influence potential customer decisions as to whether to purchase our vehicles, which may harm our ability to market and sell our vehicles.
While expected in electric vehicle applications, such battery deterioration and the related decrease in range may negatively influence potential customer decisions as to whether to purchase our vehicles, which may harm our ability to market and sell our vehicles. 28 We offer a product warranty to cover defective products at no cost to the customer.
In addition, adverse publicity surrounding an allegation of a defect, regulatory violation or other matter (with or without corresponding litigation or governmental investigation) may cause significant reputational harm that could have a significant adverse effect on our sales.
In addition, adverse publicity surrounding an allegation of a defect, regulatory violation or other matter (with or without corresponding litigation or governmental investigation) may cause significant reputational harm that could have a significant adverse effect on our sales. 35 In order for us to sell directly to end customers, we are required to comply with state-specific regulations regarding the sale of vehicles by a manufacturer.
Our sales channel partners and other end-customers in the future may seek indemnification from us in connection with infringement claims brought. 35 Risks Related to Our International Operations We are subject to governmental export and import controls that could impair our ability to compete in international markets due to licensing requirements and subject us to liability if we are not in compliance with applicable laws.
Risks Related to Our International Operations We are subject to governmental export and import controls that could impair our ability to compete in international markets due to licensing requirements and subject us to liability if we are not in compliance with applicable laws. Our products are subject to export control and import laws and regulations, including the U.S.
In connection with the hiring of our current Chief Executive Officer, we are currently undertaking a strategic review of our product development strategy. This process may result in us modifying or discontinuing current or planned products, reallocating time and resources among existing products, exploring new products or making other operational changes, including adjusting our reliance on internal and external resources.
This process has resulted, and may further result, in us modifying or discontinuing current or planned products, reallocating time and resources among existing products, exploring new products or making other operational changes, including adjusting our reliance on internal and external resources.
The incurrence of indebtedness or the issuance of certain equity securities could result in increased fixed payment obligations and could also result in restrictive covenants, such as limitations on our ability to incur additional debt or issue additional equity, limitations on our ability to acquire or license intellectual property rights, and other operating restrictions that could adversely affect our ability to conduct our business. 28 If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish some rights to our technologies or our products, to grant licenses on terms that are not favorable to us, or to issue equity instruments that may be dilutive to our stockholders.
The incurrence of indebtedness or the issuance of certain equity securities could result in increased fixed payment obligations and could also result in restrictive covenants, such as limitations on our ability to incur additional debt or issue additional equity, limitations on our ability to acquire or license intellectual property rights, and other operating restrictions that could adversely affect our ability to conduct our business.
In addition, failure to succeed in expansion of our operations may make it more challenging to recruit and retain qualified personnel. Transitioning from an offshoring to an onshoring business model carries risks.
In addition, failure to succeed in expansion of our operations may make it more challenging to recruit and retain qualified personnel. Transitioning from an offshoring to an onshoring business model carries risks. We recently transitioned from a supply chain that is heavily reliant on Chinese imports to a supply chain that relies primarily upon North American and European sources.
The electric vehicle market is in its early stage where many standards and best practices have not been established or are constantly evolving, and it may take many years for the market to fully mature. 16 We believe our future success will depend in large part on our ability to quickly and efficiently adapt to both the market demand for products and features, as well as adapt to newly created statutory laws at federal, state, local and international levels.
We believe our future success will depend in large part on our ability to quickly and efficiently adapt to both the market demand for products and features, as well as adapt to newly created statutory laws at federal, state, local and international levels.
Such cost increases have adversely affected our business and could have additional adverse effects on our business, prospects, financial condition and operating results. 17 Our limited operating history makes evaluating our business and prospects difficult and may increase the risk of any investment in our securities.
Our limited operating history makes evaluating our business and prospects difficult and may increase the risk of any investment in our securities. Our limited operating history makes evaluating our business and prospects difficult and may increase the risk of investment.
We have limited experience selling and marketing our vehicles, and we currently have minimal marketing or sales organization. To successfully expand our operations, we will need to invest in and develop these capabilities, either on our own or with others, which would be expensive, difficult and time consuming.
To successfully expand our operations, we will need to invest in and develop these capabilities, either on our own or with others, which would be expensive, difficult and time consuming. Any failure or delay in the timely development of our internal sales and marketing capabilities could adversely impact the potential for success of our products.
Any failure or delay in the timely development of our internal sales and marketing capabilities could adversely impact the potential for success of our products. Further, given our lack of prior experience in marketing and selling electric vehicles, we rely on third-party dealers to market our vehicles.
Further, given our lack of prior experience in marketing and selling electric vehicles, we rely on third-party dealers to market our vehicles.
State laws that regulate the distribution and sale of motor vehicles by the manufacturer vary, and ensuring compliance is time-consuming and costly.
Sales to both dealers and end customers require us to comply with state-specific regulations regarding the sale of vehicles by a manufacturer, including licensing and registration requirements. State laws that regulate the distribution and sale of motor vehicles by the manufacturer vary, and ensuring compliance is time-consuming and costly.
Any of the above factors may hinder widespread adoption of electric vehicles and influence prospective customers and dealers to decide not to purchase our electric vehicles. Such issues would have an adverse material effect on our consolidated financial statements of operations, financial conditions, ability to develop strategic partnerships and ability to raise additional funding.
Any of the above factors may hinder widespread adoption of electric vehicles and influence prospective customers and dealers to decide not to purchase our electric vehicles.
We are in the process of transitioning from a supply chain that is heavily reliant on Chinese imports to a supply chain that relies primarily upon North American and European sources. If our new materials suppliers are not managed properly to support vehicle demand, our results of operations and working capital can be adversely affected.
If our new materials suppliers are not managed properly to support vehicle demand, our results of operations and working capital can be adversely affected.
Issuing shares of our common stock to fund an acquisition would cause economic dilution to existing stockholders.
Our acquisition strategy may not succeed if we are unable to remain attractive to target companies or expeditiously close transactions. Issuing shares of our common stock to fund an acquisition would cause economic dilution to existing stockholders.
Club Car is not expected to be a customer in 2023. We rely upon a single third-party supplier and manufacturer located in Canada for certain sub-assembly and assembly parts for the Vanish. Any disruption in the operations of this third-party supplier could adversely affect our business and results of operations.
Adverse outcomes in some or all of these claims may result in significant monetary damages that could adversely affect our ability to conduct our business. We rely upon a single third-party supplier and manufacturer located in Canada for certain sub-assembly and assembly parts for the Vanish.
We have been expanding our operations significantly since our inception and anticipate that further significant expansion will be required to achieve our business objectives. The growth and expansion of our business and product offerings places a continuous and significant strain on our management, operational and financial resources.
If we are unable to manage our growth and expand our operations successfully, our business and operating results will be harmed, and our reputation may be damaged. We have been expanding our operations significantly since our inception and anticipate that further significant expansion will be required to achieve our business objectives.
Although we have reduced our reliance on offshore suppliers by primarily sourcing components for the Vanish from vendors in North America and Europe, our vendors may be reliant on offshore suppliers. We rely heavily on third parties, including ocean carriers and truckers, in that process.
A majority of our raw materials have historically been shipped via container from overseas vendors in China, such as Cenntro, which has historically been our largest supplier. Although we have reduced our reliance on offshore suppliers by primarily sourcing components for the Vanish from vendors in North America and Europe, our vendors may be reliant on offshore suppliers.
Government regulation has arisen, and proposals for additional regulation are advanced, primarily out of concern for the environment, vehicle safety, and energy independence. In addition, many governments regulate local product content and/or impose import requirements as a means of creating jobs, protecting domestic producers, and influencing the balance of payments.
In addition, many governments regulate local product content and/or impose import requirements as a means of creating jobs, protecting domestic producers, and influencing the balance of payments. The cost to comply with existing government regulations is substantial, and future additional regulations could have a substantial adverse impact on our financial condition.
The anticipated loss of Club Car as a customer, or any significant reduction in purchases by Club Car, could have a material adverse effect on our sales, financial condition and results of operations. Our future growth depends on customers’ willingness to adopt electric vehicles.
The loss of Club Car as a customer could have a material adverse effect on our sales, financial condition, and results of operations. 17 Following the termination of the MPA, we will need to identify new strategic channel partners to support the sales of our vehicles.
The majority of our sales have historically been comprised of sales to Club Car pursuant to the MPA. We are evaluating our relationship with Club Car and currently do not expect them to remain a customer going forward. If the MPA is terminated, we will need to identify new strategic channel partners to support the sales of our vehicles.
A significant portion of our revenues has historically been derived from Club Car pursuant to the MPA. Following the termination of the MPA, we will need to identify new strategic channel partners to support the sales of our vehicles.
The cost to comply with existing government regulations is substantial, and future additional regulations could have a substantial adverse impact on our financial condition. Our vehicles are subject to multi-jurisdictional motor vehicle standards. All vehicles sold must comply with federal, state and country-specific motor vehicle safety standards.
Our vehicles are subject to multi-jurisdictional motor vehicle standards . All vehicles sold must comply with federal, state and country-specific motor vehicle safety standards. Rigorous testing and the use of approved materials and equipment are among the requirements for achieving federal certification.
Going forward, we intend to focus on leveraging volume sales through dealers; however, we will continue to sell vehicles directly to end customers. Sales to both dealers and end customers require us to comply with state-specific regulations regarding the sale of vehicles by a manufacturer, including licensing and registration requirements.
We sold approximately 0% of our vehicles directly to our end customers in the year ended December 31, 2023. Going forward, we intend to focus on leveraging volume sales through dealers; however, we will continue to sell vehicles directly to end customers.
Moreover, the COVID-19 pandemic may negatively impact the transportation and automotive industries and consumer behavior long-term. We may experience lower-than-anticipated market acceptance of our current models and the vehicles in development. Our projected growth depends upon the end-consumers’ mass adoption of our purpose-built electric vehicles.
Such issues would have an adverse material effect on our consolidated financial statements of operations, financial conditions, ability to develop strategic partnerships and ability to raise additional funding. 23 We may experience lower-than-anticipated market acceptance of our current models and the vehicles in development. Our projected growth depends upon the end-consumers’ mass adoption of our purpose-built electric vehicles.
Risks Related to Regulatory Matters Increased safety, emissions, fuel economy, or other regulations may result in higher costs, cash expenditures, and/or sales restrictions. The motorized vehicle industry is governed by a substantial amount of government regulation, which often differs by state and region.
If we require additional funding while these restrictive covenants remain in effect, a financing transaction while remaining in compliance with the terms of such Securities Purchase Agreement, or we may be forced to seek a waiver from the investors party to such Securities Purchase Agreement. 34 Risks Related to Regulatory Matters Increased safety, emissions, fuel economy, or other regulations may result in higher costs, cash expenditures, and/or sales restrictions.
Removed
Our failure to meet the continued listing requirements of The Nasdaq Capital Market could result in a delisting of our common stock.
Added
The majority of our sales have historically been comprised of sales to Club Car pursuant to the MPA, with revenues from Club Car constituting approximately 0% of our revenues in 2023 and 100% of our revenues in 2022.
Removed
As previously reported, on October 3, 2022, we received a letter from Nasdaq indicating that, based upon the closing bid price of the Company’s common stock for the 30 consecutive business day period between August 19, 2022 and September 30, 2022, we did not meet the minimum bid price of $1.00 per share required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2).
Added
On April 4, 2023, we delivered notice of termination of the MPA to Club Car, and we do not expect them to remain a customer going forward.
Removed
In order to regain compliance with Nasdaq’s minimum bid price requirement, our common stock must maintain a minimum closing bid price of $1.00 for at least ten consecutive business days during the Compliance Period. In the event that we do not regain compliance by the end of the Compliance Period, we may be eligible for additional time to regain compliance.
Added
We face risks associated with litigation and claims. We are a party to certain legal proceedings, as further described under “Legal Proceedings.” In addition, from time to time, we may become involved in various claims, disputes and legal or regulatory proceedings that arise in the ordinary course of business and relate to contractual and other obligations.
Removed
To qualify, we will be required to meet the continued listing requirement for the market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and will need to provide written notice of our intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.
Added
Due to the uncertainties of litigation, we can give no assurance that we will prevail on any claims made against us in any such lawsuit. Also, we can give no assurance that any other lawsuits or claims brought in the future will not have an adverse effect on our financial condition, liquidity, or operating results.
Removed
If we meet these requirements, we may be granted an additional 180 calendar days to regain compliance. However, if it appears to Nasdaq that we will be unable to cure the deficiency, or if we are not otherwise eligible for the additional cure period, Nasdaq will provide notice that our common stock will be subject to delisting.
Added
The electric vehicle market is in its early stage where many standards and best practices have not been established or are constantly evolving, and it may take many years for the market to fully mature.

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWhile the outcome of these claims cannot be predicted with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse effect on our results of operations, financial positions or cash flows. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. 37 PART II
Biggest changeWhile the outcome of these claims cannot be predicted with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse effect on our results of operations, financial positions or cash flows.
We are subject to various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business, that we believe are incidental to the operation of our business.
ITEM 3. LEGAL PROCEEDINGS. We are subject to various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business, that we believe are incidental to the operation of our business.
Removed
ITEM 3. LEGAL PROCEEDINGS. On February 12, 2021, the Company entered into an agreement with Arcimoto, Inc. to settle certain patent infringement claims (the “Arcimoto Settlement”), pursuant to which the Company agreed to cease the production, importation and sale of the AYRO 311 Autocycle, a compact, three-wheeled electric vehicle previously manufactured by the Company (the “AYRO 311”), among other things.
Added
Club Car On October 20, 2023, Club Car filed a complaint against the Company in the Superior Court of Columbia County, Georgia (Civil Action File No. 2023ECV0838) (the “Club Car Complaint”), alleging that the Company had breached its contractual obligations to Club Car under the MPA due to alleged defects in the vehicles sold to Club Car and the Company’s termination of warranty support following termination of the MPA.
Removed
Accordingly, AYRO would not be contractually permitted to resume production of the AYRO 311. As of January 1, 2019, DropCar Operating, Inc. (“DropCar Operating”) had accrued approximately $0.23 million for the settlement of multiple employment disputes. As of December 31, 2022, the accrual has been paid.
Added
Club Car seeks unspecified damages and indemnification for past and future customer claims with respect to the vehicles sold to Club Car under the MPA. The Company intends to vigorously contest these allegations. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. PART II
Removed
On March 23, 2018, DropCar Operating was made aware of an audit being conducted by the New York State Department of Labor (“DOL”) regarding a claim filed by an employee. The DOL is investigating whether DropCar Operating properly paid overtime for which DropCar Operating has raised several defenses.
Removed
In addition, the DOL is conducting its audit to determine whether DropCar Operating owes spread of hours pay (an hour’s pay for each day an employee worked or was scheduled for a period over ten hours in a day).
Removed
If the DOL determines that monies are owed, the DOL will seek a backpay order, which management believes will not, either individually or in the aggregate, have a material adverse effect on our business, consolidated financial position, results of operations or cash flows. Management believes the case has no merit.
Removed
DropCar was a defendant in a class action lawsuit which resulted in a judgement entered whereby the Company is required to pay legal fees in the amount of $0.05 million to the plaintiff’s counsel. As of December 31, 2022, there is no remaining balance.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeDividends We have not paid any cash dividends to our stockholders since inception and do not plan to pay cash dividends in the foreseeable future.
Biggest changeMarket Information Our common stock trades on the Nasdaq Capital Market under the symbol “AYRO.” Stockholders As of March 29, 2024, there were approximately 84 stockholders of record of our common stock. 40 Dividends We have not paid any cash dividends to our common stockholders since inception and do not plan to pay cash dividends in the foreseeable future.
In general, as a Delaware corporation, we may pay dividends out of surplus capital or, if there is no surplus capital, out of net profits for the fiscal year in which a dividend is declared and/or the preceding fiscal year. We currently intend to retain earnings, if any, for reinvestment in our business. Recent Sales of Unregistered Securities None.
In general, as a Delaware corporation, we may pay dividends out of surplus capital or, if there is no surplus capital, out of net profits for the fiscal year in which a dividend is declared and/or the preceding fiscal year. We currently intend to retain earnings, if any, for reinvestment in our business.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Market Information Our common stock trades on the Nasdaq Capital Market under the symbol “AYRO.” Stockholders As of March 22, 2023, there were approximately [79] stockholders of record of our common stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Added
Recent Sales of Unregistered Securities All sales of unregistered securities during the year ended December 31, 2023 were previously disclosed in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K. Issuer Purchases of Equity Securities None. ITEM 6. [RESERVED]

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeResults of Operations Year Ended December 31, 2022 Compared with Year ended December 31, 2021 The following table sets forth our results of operations for each of the periods set forth below: For the Years ended December 31, 2022 2021 Change Revenue $ 2,990,497 $ 2,683,597 $ 306,900 Cost of goods sold 6,043,506 4,774,784 1,268,722 Gross loss (3,053,009 ) (2,091,187 ) (961,822 ) Operating expenses: Research and development 6,845,451 11,449,617 (4,604,166 ) Sales and marketing 1,874,658 2,419,168 (544,510 ) General and administrative 11,503,788 17,168,898 (5,665,110 ) Total operating expenses 20,223,897 31,037,683 (10,813,786 ) Loss from operations (23,276,906 ) (33,128,870 ) 9,851,964 Other income and (expense): Interest Income 182,276 51,768 130,508 Interest expense - (2,312 ) 2,312 Realized gain on marketable securities 160,990 - 160,990 Unrealized loss on marketable securities (1,713 ) - (1,713 ) Net loss $ (22,935,353 ) $ (33,079,414 ) $ 10,144,061 Revenue Revenue was $2.99 million for the year ended December 31, 2022, as compared to $2.68 million for the year ended December 31, 2021, an increase of 11.4%, or $0.31 million.
Biggest changeThe Company is in a loss position, therefore there is no provision for income tax for the years ended December 31, 2023 and 2022. 47 Results of Operations Year Ended December 31, 2023 Compared with Year Ended December 31, 2022 The following table sets forth our results of operations for each of the periods set forth below: Years Ended December 31, 2023 2022 Change Revenue $ 498,917 $ 2,990,497 $ (2,491,580 ) Cost of goods sold 5,133,996 6,043,506 (909,510 ) Gross loss (4,635,079 ) (3,053,009 ) (1,582,070 ) Operating expenses: Research and development 7,418,026 6,845,451 572,575 Sales and marketing 1,721,191 1,874,658 (153,467 ) General and administrative 14,382,132 11,503,788 2,878,344 Total operating expenses 23,521,349 20,223,897 3,297,452 Loss from operations (28,156,428 ) (23,276,906 ) (4,879,522 ) Other income (expense): Interest income 441,443 182,276 259,167 Change in fair value - warrant liability (3,350,320 ) — (3,350,320 ) Change in fair value - derivative liability (4,253,000 ) — (4,253,000 ) Unrealized gain (loss) on marketable securities 215,900 (1,713 ) 217,613 Realized gain on marketable securities 941,950 160,990 780,960 Total other income (expense), net (6,004,027 ) 341,553 (6,345,580 ) Net loss $ (34,160,455 ) $ (22,935,353 ) $ (11,225,102 ) Revenue Revenue was $498,917 for the year ended December 31, 2023, as compared to $2,990,497 for the year ended December 31, 2022, a decrease of 83.3%, or $2,491,580.
In the event we terminate the Linamar MLA prior to its expiration, whether following a change in control or otherwise, we must purchase any remaining raw material inventory, finished goods inventory and work in progress and any unamortized capital equipment used in production and testing of the Products and pay a termination fee of $750,000, subject to certain adjustments.
In the event we terminate the Linamar MLA prior to its expiration, whether following a change in control or otherwise, we must purchase any remaining raw material inventory, finished goods inventory, work in progress and any unamortized capital equipment used in production and testing of the Products and pay a termination fee of $750,000, subject to certain adjustments.
The fair value of each restricted stock grant is based on the fair market value price of common stock on the date of grant, and it is measured and expensed as it vests. We estimate the fair value of stock-based and cash unit awards containing a market condition using a Monte Carlo simulation model.
The fair value of each restricted stock grant is based on the fair market value price of common stock on the date of grant, and it is measured and expensed as the restricted stock vests. We estimate the fair value of stock-based and cash unit awards containing a market condition using a Monte Carlo simulation model.
We expect our research and development expenses to increase in absolute dollars as we continue to invest in new and existing products. Sales and Marketing Expense Sales and marketing expense consists primarily of employee compensation and related expenses, sales commissions, marketing programs, travel and entertainment expenses and allocated overhead.
We expect our research and development expense to increase in absolute dollars as we continue to invest in new and existing products. Sales and Marketing Expense Sales and marketing expense consists primarily of employee compensation and related expenses, sales commissions, marketing programs, travel and entertainment expenses and allocated overhead.
We are subject to a number of risks similar to those of earlier stage commercial companies, including dependence on key individuals and products, the difficulties inherent in the development of a commercial market, the potential need to obtain additional capital, competition from larger companies, other technology companies and other technologies.
We are subject to a number of risks similar to those of earlier stage commercial companies, including dependence on key individuals and products, the difficulties inherent in the development of a commercial market, the potential need to obtain additional capital, and competition from larger companies, other technology companies and other technologies.
Supply Agreement with Gallery Carts During 2020, we entered into a supply agreement with Gallery Carts (“Gallery”), a leading provider of food and beverage kiosks, carts, and mobile storefront solutions. Joint development efforts have led to the launch of the parties’ first all-electric configurable mobile hospitality vehicle for “on-the-go” venues across the United States.
Supply Agreements During 2020, we entered into a supply agreement with Gallery Carts (“Gallery”), a leading provider of food and beverage kiosks, carts, and mobile storefront solutions. Joint development efforts have led to the launch of the parties’ first all-electric configurable mobile hospitality vehicle for “on-the-go” venues across the United States.
Inventory Obsolescence At June 30, 2022, we determined that testing of obsolescence was required for inventory due to the quality of certain purchased components from Cenntro’s lithium-ion (“NCM”) line. 17 vehicles tested in the second quarter of 2022 were determined to have 49 unique failures. An inspection of the remaining NCM units revealed a 100% failure rate.
On June 30, 2022, we determined that testing of obsolescence was required for inventory due to the quality of certain purchased components from Cenntro’s lithium-ion (“NCM”) line. 17 vehicles tested in the second quarter of 2022 were determined to have 49 unique failures. An inspection of the remaining NCM units revealed a 100% failure rate.
At June 30, 2022, we determined that testing of obsolescence was required for inventory due to the quality of NCM components received from Cenntro. 17 vehicles tested in the second quarter of 2022 were determined to have 49 unique failures. An inspection of the remaining NCM units revealed a 100% failure rate.
On June 30, 2022, we determined that testing of obsolescence was required for inventory due to the quality of NCM components received from Cenntro. 17 vehicles tested in the second quarter of 2022 were determined to have 49 unique failures. An inspection of the remaining NCM units revealed a 100% failure rate.
Strategic Review Following the hiring of our current Chief Executive Officer in the third quarter of 2021, we initiated a strategic review of our product development strategy as we focus on creating value within the electric vehicle, last-mile delivery, smart payload and enabling infrastructure markets.
Strategic Review Following the hiring of our former Chief Executive Officer in the third quarter of 2021, we initiated a strategic review of our product development strategy, as we focus on creating value within the electric vehicle, last-mile delivery, smart payload and enabling infrastructure markets.
Pursuant to the MPA, we granted Club Car a right of first refusal for sales of 51% or more of AYRO Operating’s assets or equity interests, which right of first refusal is exercisable for a period of 45 days following delivery of an acquisition notice to Club Car.
Pursuant to the MPA, AYRO Operating granted Club Car a right of first refusal for sales of 51% or more of AYRO Operating’s assets or equity interests, which right of first refusal is exercisable for a period of 45 days following delivery of an acquisition notice to Club Car.
If significant disruptions along these lines continue, this could lead to further significant disruptions in our business, delays in shipments to us and to our vendors and revenue and profitability shortfalls, which could adversely affect our business, prospects, financial condition and operating results.
If significant disruptions along these lines occur or continue, this could lead to further significant disruptions in our business, delays in shipments to us and to our vendors and revenue and profitability shortfalls, which could adversely affect our business, prospects, financial condition and operating results.
This innovative solution permits food, beverage and merchandising operators to bring goods directly to consumers. The configurable Powered Vendor Box, in the rear of the vehicle, features long-life lithium batteries that power the preconfigured hot/cold beverage and food equipment and is directly integrated with the AYRO 411x and will be directly integrated with the Vanish.
This innovative solution permits food, beverage and merchandising operators to bring goods directly to consumers. The configurable Powered Vendor Box, in the rear of the vehicle, features long-life lithium batteries that power the preconfigured hot/cold beverage and food equipment and is directly integrated with the Vanish.
We also agreed to collaborate with Club Car on new products similar to our four-wheeled vehicle and improvements to existing products and granted Club Car a right of first refusal to purchase similar commercial utility vehicles which AYRO Operating may develop during the term of the MPA.
AYRO Operating also agreed to collaborate with Club Car on new products similar to the AYRO 411 Fleet and improvements to existing products and granted Club Car a right of first refusal to purchase similar commercial utility vehicles which AYRO Operating may develop during the term of the MPA.
The anticipated loss of Club Car as a customer, or any significant reduction in purchases by Club Car, could have a material adverse effect on our sales, financial condition and results of operations. 41 Manufacturing Services Agreement with Karma On September 25, 2020, we entered into a Master Manufacturing Services Agreement (the “Karma Agreement”) with Karma, pursuant to which Karma agreed to provide certain manufacturing services for the production of our vehicles.
The loss of Club Car as a customer could have a material adverse effect on our sales, financial condition, and results of operations. 43 Manufacturing Services Agreement with Karma On September 25, 2020, we entered into a Master Manufacturing Services Agreement (the “Karma Agreement”) with Karma, pursuant to which Karma agreed to provide certain manufacturing services for the production of our vehicles.
Our business depends on the continued supply of battery cells and other parts for our vehicles. During 2021 and 2022, we at times experienced supply chain shortages of both lithium-ion battery cells and other critical components used to produce our vehicles, which has slowed our planned production of vehicles.
During 2022 and 2023, we at times experienced supply chain shortages of both lithium-ion battery cells and other critical components used to produce our vehicles, which has slowed our planned production of vehicles.
We import the Products from Linamar in Canada, and we manufacture and assemble the Vanish at our customization, service, and integration facility in Round Rock, Texas. Over 98% of the vehicle assemblies, components, and products are from North American and European sources. Manufacturing Agreement with Cenntro In 2017, AYRO Operating Company, Inc.
We import the Products from Linamar in Canada, and we manufacture and assemble the Vanish at our customization, service, and integration facility in Round Rock, Texas. Over 98% of the vehicle assemblies, components, and products for the Vanish are from North American and European sources.
Stock-based compensation We account for stock-based compensation expense in accordance with Accounting Standards Codification (“ASC”) 718, Compensation—Stock Compensation , which requires the measurement and recognition of compensation expense for share-based awards based on the estimated fair value on the date of grant.
Operating expenses also include allocated overhead costs for facilities and utility costs. 46 Stock-Based Compensation We account for stock-based compensation expense in accordance with Accounting Standards Codification (“ASC”) 718, Compensation—Stock Compensation, which requires the measurement and recognition of compensation expense for share-based awards based on the estimated fair value on the date of grant.
Salaries and personnel-related costs, benefits, and stock-based compensation expense are the most significant components of each category of operating expenses. Operating expenses also include allocated overhead costs for facilities and utility costs.
Salaries and personnel-related costs, benefits, and stock-based compensation expense are the most significant components of each category of operating expenses.
Products AYRO vehicles provide the end user an environmentally friendly alternative to internal combustion engine vehicles (cars powered by gasoline or diesel oil), for light duty uses, including low-speed logistics, maintenance and cargo services, at a lower total cost.
Products Our vehicles provide the end user an environmentally friendly alternative to internal combustion engine vehicles (cars powered by gasoline or diesel oil), for light duty uses, including low-speed logistics, maintenance services, cargo services, and personal/group transport in a quiet, zero emissions vehicle with a lower total cost of ownership.
In partnership with Club Car and in interaction with its substantial dealer network, we have redirected our business development resources towards supporting Club Car’s enterprise and fleet sales function as Club Car proceeds in its new product introduction initiatives.
In partnership with Club Car and in interaction with its dealer network, we directed our business development resources towards supporting Club Car’s enterprise and fleet sales function as Club Car proceeds in its new product introduction initiatives. Substantially all of our sales have historically been to Club Car pursuant to the MPA.
We have not regained compliance as of the date of this report. Manufacturing Agreement with Linamar On July 28, 2022, we partnered with Linamar Corporation (“Linamar”), a Canadian manufacturer, in a manufacturing agreement (the “Linamar MLA”) to provide certain sub assembly and assembly parts, including the cabin frame and skate for the Vanish (collectively, the “Products”).
Final assembly of the Vanish occurs in our Round Rock, Texas facilities. Manufacturing Agreement with Linamar On July 28, 2022, we partnered with Linamar Corporation (“Linamar”), a Canadian manufacturer, in a manufacturing agreement (the “Linamar MLA”) to provide certain sub assembly and assembly parts, including the cabin frame and skate for the Vanish (collectively, the “Products”).
Because these customers may use our products in connection with a variety of projects of different sizes and durations, a customer’s orders for one reporting period generally do not indicate a trend for future orders by that customer. Additionally, order patterns do not necessarily correlate amongst customers.
Customers often specify requested delivery dates that coincide with their need for our vehicles. Because these customers may use our products in connection with a variety of projects of different sizes and durations, a customer’s orders for one reporting period generally do not indicate a trend for future orders by that customer.
Cost of goods sold also includes freight and changes to our warranty reserves. Allocated overhead costs consist of certain facilities and utility costs. We expect cost of revenue to increase in absolute dollars as product revenue increases.
Allocated overhead costs consist of certain facilities and utility costs. We expect the cost of revenue to increase in absolute dollars as product revenue increases.
The global shipping industry is also experiencing unprecedented increases in shipping rates from the trans-Pacific ocean carriers due to various factors, including limited availability of shipping capacity.
The global shipping industry is also experiencing unprecedented increases in shipping rates from the trans-Pacific ocean carriers due to various factors, including limited availability of shipping capacity. Additionally, if further increases in fuel prices occur, our transportation costs would likely further increase.
During the year ended December 31, 2022, a $413,561 net realizable value adjustment was recorded due to the Club Car Discount (as defined below), spare inventory for the 411x was written off, net with the inventory reserve of $124,375, and $2,476,322 was expensed for impairment of inventory.
During the year ended December 31, 2022, a $413,561 net realizable value adjustment was recorded due to the Club Car Discount (as defined below), spare inventory for the 411x was written off, net with the inventory reserve of $124,375, and $2,476,322 was expensed for impairment of inventory. 45 Components of Results of Operations Revenue We derive revenue from the sale of our four-wheeled electric vehicles, and, to a lesser extent, shipping, parts and service fees.
General and Administrative Expense General and administrative expense consists primarily of employee compensation and related expenses for administrative functions including finance, legal, human resources and fees for third-party professional services, and allocated overhead.
General and Administrative Expense General and administrative expense consists primarily of employee compensation and related expenses for administrative functions including finance, legal, human resources and fees for third-party professional services, and allocated overhead. We expect our general and administrative expense to increase in absolute dollars as we continue to invest in growing our business.
We expect to lose our exclusive license under the Cenntro MLA, in which case Cenntro could sell identical or similar products through other companies or directly to our customers, which could have a material adverse effect on our results of operations and financial condition.
We expect to lose our exclusive license under the Cenntro MLA, in which case Cenntro could sell identical or similar products through other companies or directly to our customers, which could have a material adverse effect on our results of operations and financial condition. 42 The Vanish utilizes assemblies and products that largely eliminate our dependency on Chinese imports and optimize the supply chain to rely primarily upon North American and European sources.
For the fiscal year ended December 31, 2022, revenues from Club Car constituted approximately 100% of our revenues. In connection with the forthcoming introduction of the Vanish, we are reevaluating our channel strategy with an eye towards distributing our next-generation platform and payloads in a manner that maximizes visibility, moderates channel costs and creates value.
In connection with the termination of the MPA and the introduction of the Vanish, we are reevaluating our channel strategy with an eye towards distributing our next-generation platform and payloads in a manner that maximizes visibility, moderates channel costs, and creates value.
We have canceled all purchase orders and future builds with Cenntro and currently intend to only order replacement parts for vehicles from Cenntro in the future.
We have canceled all purchase orders and future builds with Cenntro and currently intend to only order replacement parts for vehicles from Cenntro in the future. Cenntro inventory remaining on hand as of December 31, 2023, was valued at $0.
We began design and development on the Vanish in December 2021, including updates to our supply chain, the offshoring/onshoring mix, our manufacturing strategy and our annual model year refresh program. We unveiled the first Vanish prototype in the fourth quarter of 2022.
We began design and development of the Vanish in December 2021, including updates to our supply chain, the offshoring/onshoring mix, our manufacturing strategy, and our annual model year refresh program. We commenced low-rate initial production of the Vanish in the second quarter of 2023 and commenced initial sales and delivery of the Vanish in the third quarter of 2023.
In connection with the strategic review, we canceled development of our planned next-generation three-wheeled high-speed vehicle. For the past several years, our primary supplier has been Cenntro Automotive Group, Ltd. (“Cenntro”), which operates a large electric vehicle factory in the automotive district in Hangzhou, China.
In connection with our strategic review, we have cancelled all material research and development activity and expenditures, associated with our planned next-generation three-wheeled high-speed vehicle. Our primary supplier was formerly Cenntro Automotive Group, Ltd. (“Cenntro”), which operates a large electric vehicle factory in the automotive district in Hangzhou, China.
These international distributors assist with import regulations, currency conversions and local language. Our vehicle product sales revenues vary from period to period based on, among other things, the customer orders received and our ability to produce and deliver the ordered products. Customers often specify requested delivery dates that coincide with their need for our vehicles.
Products are typically shipped to dealers or directly to end customers, or in some cases to our international distributors. These international distributors assist with import regulations, currency conversions and local language. Our vehicle product sales revenues vary from period to period based on, among other things, the customer orders received and our ability to produce and deliver the ordered products.
Marketing programs consist of advertising, tradeshows, events, corporate communications and brand-building activities. We expect sales and marketing expenses to increase modestly in absolute dollars as we expand our market segments addressed, refresh and expand our product lines, provide event support for our channel partners, and further develop potential sales channels.
Marketing programs consist of advertising, trade shows, events, corporate communications, and brand-building activities. We expect sales and marketing expense to increase in absolute dollars as we expand our sales force, expand our product lines, increase marketing resources, and further develop potential sales channels.
In addition, we could be impacted by shortages of other products or raw materials, including silicon chips that we or our suppliers use in the production of our vehicles or parts sourced for our vehicles.
In addition, we could be impacted by shortages of other products or raw materials, including silicon chips that we or our suppliers use in the production of our vehicles or parts sourced for our vehicles. The Vanish utilizes assemblies and products that largely eliminate our dependency on Chinese imports and optimize the supply chain to North American and European sources.
We are evaluating our relationship with Club Car and may seek to replace Club Car with new business partners for selling our products beginning with the Vanish. We do not expect Club Car to remain a customer going forward.
On April 4, 2023, AYRO Operating delivered notice of termination of the MPA to Club Car, and we intend to replace Club Car with new business partners for selling our products beginning with the Vanish. We do not expect Club Car to remain a customer going forward.
As a result of rising shipping costs, quality issues with certain components and persistent delays, we ceased production of the AYRO 411x from Cenntro in September 2022 in order to focus our resources on the development and launch of our model year 2023 refresh, the Vanish.
We ceased production of the 411x from Cenntro in September 2022 in order to focus our resources on the development and launch of the new 411 fleet vehicle model year 2023 refresh, the Vanish.
Cost of goods sold and gross loss Cost of goods sold increased by $1.27 million, or 26.6%, to $6.04 million for the year ended December 31, 2022, as compared to the year ended December 31, 2021.
Cost of goods sold and gross loss Cost of goods sold decreased by $909,510, or 15.0% or for the year ended December 31, 2023 as compared to the year ended December 31, 2022.
We imported semi-knocked-down vehicle kits from Cenntro for the AYRO 411x models comprising our model year 2022 lineup. The vehicle kits were received through shipping containers at the assembly facility of Karma Automotive LLC (“Karma”), our then-manufacturing partner, in southern California, as well as at our customization, service and integration facility in Round Rock, Texas.
The vehicle kits were received through shipping containers at the assembly facility of Karma Automotive LLC (“Karma”), our previous manufacturing partner in southern California, as well as at our customization, service and integration facility in Round Rock, Texas. The vehicles were then assembled with tailored customization requirements per order.
Based on the foregoing, management believes that the existing cash at December 31, 2022, will be sufficient to fund operations for at least the next twelve months following the date of this report.
Based on the foregoing, management believes that the existing cash and cash equivalents at December 31, 2023, will be sufficient to fund operations for at least the next twelve months following the date of this report. As discussed above, in connection with our strategic review we canceled development of our planned next-generation three-wheeled vehicle.
In addition to finding innovative and safe ways to deliver food and beverages to their patrons, reducing and ultimately eliminating their carbon footprint is a top priority for many of these customers. 42 Factors Affecting Results of Operations Master Procurement Agreement In March 2019, we entered into the MPA with Club Car.
In addition to finding innovative and safe ways to deliver food and beverages to their patrons, reducing and ultimately eliminating their carbon footprint is a top priority for many of these customers. On November 2, 2023, we entered into a supply agreement with Sirris Inc., a provider in motor vehicle parts for innovative vehicle types.
Additionally, if further increases in fuel prices occur, our transportation costs would likely further increase. 43 Supply Chain Beginning in the second quarter of 2021, we offered a configuration of our 411x powered by lithium-ion battery technology. Additionally, our powered food box offerings are currently powered by lithium-ion battery technology.
Supply Chain Beginning in the second quarter of 2021, we offered a configuration of our 411x powered by lithium-ion battery technology. Additionally, our powered food box offerings are currently powered by lithium-ion battery technology. Our business depends on the continued supply of battery cells and other parts for our vehicles.
Stock based compensation decreased by $0.2 million. Expenses related to consultants for professional marketing services decreased by $0.07 million. General and administrative expenses The majority of our operating losses from continuing operations resulted from general and administrative expenses. General and administrative expenses consist primarily of costs associated with our overall operations and with being a public company.
General and administrative expenses The majority of our operating losses from continuing operations resulted from general and administrative costs. General and administrative expenses consist primarily of costs associated with our overall operations and being a public company. These costs include personnel, legal and financial professional services, placement, storage, consulting, and compliance related fees.
In addition, we issued 555,004 shares of common stock from the exercise of stock options and received cash proceeds of $1.5 million. 49 Critical Accounting Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”).
We received the Nasdaq Stockholder Approval at a special meeting of stockholders held on September 14, 2023. 52 Critical Accounting Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).
A port worker strike, work slow-down or other transportation disruption in domestic ports could significantly disrupt our business or that of our vendors. This has materially and adversely affected our business and financial results for the fiscal year ended December 31, 2022 and could continue to materially and adversely affect our business and financial results in 2023.
A port worker strike, work slow-down or other transportation disruption in domestic ports could significantly disrupt our business or that of our vendors.
Although we do not believe Cenntro’s termination of the Cenntro MLA is valid, we have determined to cease production of the AYRO 411x and focus our resources on the development and launch of the Vanish.
On May 31, 2022, we received a letter from Cenntro purporting to terminate all agreements and contracts between the Company and Cenntro. Although we do not believe Cenntro’s termination of the Cenntro MLA is valid, we have ceased production of the AYRO 411 Fleet models and determined to focus our resources on the Vanish.
Cenntro owns the design of the AYRO Club Car 411 and 411x (“AYRO 411 Fleet”) vehicles and has granted us an exclusive license to purchase the AYRO 411 Fleet vehicles for sale in North America. 40 Under our Manufacturing License Agreement with Cenntro (the “Cenntro MLA”), in order for us to maintain our exclusive territorial rights pursuant to the Cenntro MLA, we must meet certain minimum purchase requirements.
Manufacturing Agreement with Cenntro In 2017, AYRO Operating partnered with Cenntro in a supply chain agreement to provide sub-assembly manufacturing services. Cenntro owns the design of the AYRO Club Car 411 and 411x (“AYRO 411 Fleet”) vehicles and granted us an exclusive license to purchase the AYRO 411 Fleet vehicles for sale in North America.
The decrease in cash and working capital was primarily a result of our inventory write down and our operating loss, respectively. Our sources of cash since inception have been predominantly from the sale of equity and debt.
Our sources of cash since inception have been predominantly from the sale of equity and debt.
The increase in cost of goods sold was primarily due to a $1.32 million write-off of NCM inventory due to a 100% failure rate, and $0.62 million of Cenntro prepaid and accrued balances, as well as an increase in vehicles sales, and an increase in time-of-order options for our vehicles and specialty products.
The decrease in cost of goods sold was primarily due to a decrease in write downs to inventory year over year, a decrease in vehicle sales, and a decrease in time-of order options for our vehicles and specialty products.
Provided that all other revenue recognition criteria have been met, we typically recognize revenue upon shipment, as title and risk of loss are transferred to customers and channel partners at that time. Products are typically shipped to dealers or directly to end customers, or in some cases to our international distributors.
In the past we also derived rental revenue from vehicle revenue sharing agreements with tourist destination fleet operators, and, to a lesser extent, shipping, parts and service fees. Provided that all other revenue recognition criteria have been met, we typically recognize revenue upon shipment, as title and risk of loss are transferred to customers and channel partners at that time.
Provision for Income Taxes Provision for income taxes consists of estimated income taxes due to the United States government and to the state tax authorities in jurisdictions in which we conduct business. In the case of a tax deferred asset, we reserve the entire value for future periods.
Other Income (Expense) Other income (expense) consists primarily of interest income, unrealized gain/loss on marketable securities and changes in fair values of warrants and derivative liabilities. Provision for Income Taxes Provision for income taxes consists of estimated income taxes due to the United States government and to the state tax authorities in jurisdictions in which we conduct business.
The company recorded a $0.41 million net realizable value adjustment due to the Club Car discount. Gross margin percentage was (102.1)% for the year ended December 31, 2022, as compared to (77.9)% for the year ended December 31, 2021.
Gross margin percentage was (929.0)% for the year ended December 31, 2023 as compared to (102.1)% for the year ended December 31, 2022. The increase in gross margin percentage in the core business was primarily due to decrease in sales of Club Car.
Sales and marketing expense Sales and marketing expense decreased by $0.54 million, or 22.5%, for the year ended December 31, 2022, as compared to the year ended December 31, 2021, as we reduced the cost of marketing-related initiatives surrounding the Vanish. Salaries and related expenses decreased by $0.12 due to the restructuring of our sales and marketing resources.
The increase was primarily due to an increase of research and development (“R&D”) expenses associated with Vanish. Sales and marketing expense Sales and marketing expense decreased by $153,467, or 8.2%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022, as we continued our focus on marketing-related initiatives surrounding the Vanish.
Investing Activities During the year ended December 31, 2022, we used cash of $11.34 million in investing activities, as compared to $0.6 million cash used in investing activities during 2021, an increase of $10.73 million. The net increase was primarily due to our investment in marketable securities.
The net increase was primarily due to the proceeds from sale of marketable securities, net. 50 Financing Activities During the year ended December 31, 2023, financing activities provided cash of $21,632,156, an increase of 100% as compared to the year ended December 31, 2022.
The decrease in gross margin percentage was primarily due to the write-off of NCM inventory, the write down of Cenntro balances, and the issuance of credit memos in connection with the Club Car Discount, and the corresponding net realizable value adjustment. 46 Research and development expenses Research and development expense was $6.85 million for the year ended December 31, 2022, as compared to $11.45 million for the year ended December 31, 2021, a decrease of $4.6 million, or 41%.
During the year ended December 31, 2023 and 2022, a $3,048,485 net realizable value adjustment was recorded related to the Vanish product and 411x and a $2,476,322 net realizable value adjustment was recorded due to the Club Car Discount and write-off of NCM inventory and the write down of Cenntro balances, respectively. 48 Research and development expenses Research and development expense was $7,418,026 for the year ended December 31, 2023, as compared to $6,845,451 for the year ended December 31, 2022, an increase of $572,575, or 8.4%.
In December of 2022 we completed pre-production on the new 411 fleet vehicle model refresh, the Vanish. 48 Summary of Cash Flows The following table summarizes our cash flows: Years Ended December 31, 2022 2021 Cash Flows: Net cash used in operating activities $ (18,728,643 ) $ (26,631,485 ) Net cash used in investing activities $ (11,335,261 ) $ (600,363 ) Net cash provided by financing activities $ - $ 59,855,217 Operating Activities During the year ended December 31, 2022, we used $18.73 million in cash in operating activities, a decrease of $7.90 million compared to cash used in operating activities of $26.63 million during the same period in 2021.
Summary of Cash Flows The following table summarizes our cash flows: Years Ended December 31, 2023 2022 Cash Flows: Net cash used in operating activities $ (26,181,465 ) $ (18,728,643 ) Net cash provided by (used in) investing activities $ 8,893,614 $ (11,335,261 ) Net cash provided by financing activities $ 21,632,156 $ — Operating Activities During the year ended December 31, 2023, we used $26,181,465 in cash from operating activities, an increase in use of $7,452,822 when compared to the cash used in operating activities of $18,728,643 during the year ended December 31, 2022.
The increase in revenue was the result of an increase in volume of sales of our vehicles, powered-food box sales and other vehicle options for the year ended December 31, 2022.
The decrease in revenue was the result of the reduction in sales of our vehicles, deriving from the wind down of our Master Agreement with Club Car, related powered-food box sales and other vehicle options.
The pandemic adversely impacted our sales and the demand for our products in 2021 and 2022. Tariffs Countervailing tariffs on certain goods from China continued to have an adverse impact on raw material costs throughout 2021 and 2022.
We do not expect Club Car to remain a customer going forward. 44 Tariffs Countervailing tariffs on certain goods from China continued to have an adverse impact on raw material costs throughout 2022.
Revenue was reduced by $0.13 million as a result of the Club Car Discount for the year ended December 31, 2022. 44 Cost of Goods Sold Cost of goods sold primarily consists of costs of materials and personnel costs associated with manufacturing operations, and an accrual for post-sale warranty claims. Personnel costs consist of wages and associated taxes and benefits.
Additionally, order patterns do not necessarily correlate amongst customers. Cost of Goods Sold Cost of goods sold primarily consists of costs of materials and personnel costs associated with manufacturing operations, and an accrual for post-sale warranty claims. Personnel costs consist of wages and associated taxes and benefits. Cost of goods sold also includes freight and changes to our warranty reserves.
Master Procurement Agreement with Club Car In March 2019, we entered into a five-year Master Procurement Agreement (the “MPA”) with Club Car for the sale of our four-wheeled vehicles. The MPA grants Club Car the exclusive right to sell our four-wheeled vehicles in North America, provided that Club Car orders at least 500 vehicles per year.
The MPA granted Club Car the exclusive right to sell the AYRO 411 Fleet in North America, provided that Club Car ordered at least 500 vehicles per year. Club Car did not meet this volume threshold for 2020, 2021 or 2022.
Removed
The majority of our sales have historically been comprised of sales of AYRO 411 Fleet (as defined below) vehicles to Club Car, LLC (“Club Car”).
Added
We have commenced sales and delivery of our current model, the Vanish, in support of the aforementioned markets. 41 Reverse Stock Split On September 15, 2023, we effected a one-for-eight reverse stock split of our common stock (the “Reverse Stock Split”).
Removed
Pre-production of the Vanish was completed in December 2022 and preorders are expected to be available in the second quarter of 2023. 39 Nasdaq Minimum Bid Price Requirement On October 3, 2022, we received a letter from the Listing Qualifications Department of the Nasdaq Stock Market (“Nasdaq”) indicating that, based upon the closing bid price of the Company’s common stock for the 30 consecutive business day period between August 19, 2022 and September 30, 2022, we did not meet the minimum bid price of $1.00 per share required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2).
Added
All share and per share information in this quarterly report have been retroactively adjusted to reflect the Reverse Stock Split.
Removed
The letter also indicated that we will be provided with a compliance period of 180 calendar days, or until April 3, 2023 (the “Compliance Period”), in which to regain compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A).
Added
Recent Developments On January 31, 2024, we implemented an internal restructuring in order to achieve greater efficiency in pursuit of our strategic goals. As part of the restructuring, amongst other things, we eliminated a substantial number of positions as we re-evaluate our sales, marketing and manufacturing functions.
Removed
In order to regain compliance with Nasdaq’s minimum bid price requirement, our common stock must maintain a minimum closing bid price of $1.00 for at least ten consecutive business days during the Compliance Period. In the event we do not regain compliance by the end of the Compliance Period, we may be eligible for additional time to regain compliance.
Added
Following the internal restructuring, as of March 22, 2024, we have 14 full-time employees.
Removed
To qualify, we will be required to meet the continued listing requirement for the market value of our publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and will need to provide written notice of its intention to cure the deficiency during the second compliance period, by effecting a reverse stock split, if necessary.
Added
Under our Manufacturing License Agreement with Cenntro (the “Cenntro MLA”), in order for us to maintain our exclusive territorial rights pursuant to the Cenntro MLA, we must meet certain minimum purchase requirements. We imported semi-knocked-down vehicle kits from Cenntro for the AYRO 411 Fleet models that comprised our model year 2022 lineup.
Removed
If we meet these requirements, we may be granted an additional 180 calendar days to regain compliance. However, if it appears to Nasdaq that we will be unable to cure the deficiency, or if we are not otherwise eligible for the additional cure period, Nasdaq will provide notice that our common stock will be subject to delisting.
Added
Club Car MPA Termination The majority of our sales have historically been comprised of sales to Club Car pursuant to a master procurement agreement (the “MPA”) entered into by and among AYRO Operating Company, Inc., our subsidiary (“AYRO Operating”), and Club Car on March 5, 2019.
Removed
(“AYRO Operating”) our wholly owned subsidiary previously known as AYRO, Inc. partnered with Cenntro in a supply chain agreement to provide sub-assembly manufacturing services.
Added
Sirris has agreed to supply rear and front shocks to support the manufacturing of our electric vehicle fleet. Sirris is committed to meeting our upside demand for these products in the event production increases. On December 21, 2023, we entered into a supply agreement with Athena Manufacturing, LP, a provider of customizable sophisticated metal products.
Removed
The vehicles were then assembled with tailored customization requirements per order. On May 31, 2022, we received a letter from Cenntro purporting to terminate all agreements and contracts between the Company and Cenntro.
Added
As part of the agreement, we are able to submit devices, component, component assembly, material part, or piece that is custom to AYRO. This is a non-exclusive agreement in which we are able to engage other suppliers for these products. Factors Affecting Results of Operations Master Procurement Agreement In March 2019, we entered into the MPA with Club Car.
Removed
The new Vanish utilizes assemblies and products that will largely eliminate our dependency on Chinese imports and optimize the supply chain to rely primarily upon North American and European sources. Final assembly of the Vanish is expected to occur in our Round Rock, Texas facilities, which we are currently building out in anticipation of Vanish production.
Added
On April 4, 2023, we delivered notice of termination of the MPA to Club Car, and we intend to replace Club Car with new business partners for selling our products beginning with the Vanish.
Removed
Although Club Car did not meet the volume threshold for 2020 or 2021, we have not sold our model year 2022 411x vehicles commercially other than through Club Car. Under the terms of the MPA, we receive orders from Club Car dealers for vehicles of specific configurations, and we invoice Club Car once the vehicle has shipped.
Added
Inventory Obsolescence During the year ended December 31, 2023, we determined that the 411x vehicle and all spare parts that we had in inventory sourced from China that were specific to the 411x vehicle were obsolete as they are sold exclusively through Club Car. As a result, all inventory associated with the 411x vehicle was written off.
Removed
The MPA has an initial term of five (5) years commencing January 1, 2019 and may be renewed by Club Car for successive one-year periods upon 60 days’ prior written notice, so long as those minimums are met.

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